Socially Responsible Investing

April 23, 2019
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April is National Financial Literacy Month, which was created to to highlight the importance of financial literacy and teach everyone how to establish and maintain healthy financial habits.

Investing with an eye toward promoting social, political, or environmental concerns (or at least not supporting activities you feel are harmful) doesn't mean you have to forgo pursuing a return on your money. Socially responsible investing may allow you to further both your own economic interests and a greater good, in whatever way you define that term.

The concept of putting your money where your mouth is first gained widespread attention during the 1970s, when such highly charged political issues as the Vietnam War and apartheid in South Africa led some investors to try to prevent their money from supporting policies that were counter to their beliefs.

The definition of socially responsible investing has evolved. And it may be referred to by different names, such as “sustainable and responsible investing” or “values-based investing.”

Whatever term is used, the investment discipline is usually characterized by a set of principles that govern how investments are selected. One widely used framework includes environmental, social, and corporate governance criteria (ESG).

Socially responsible investing has grown in popularity, with 71% of investors interested in the topic[i]. It represents $8.72 trillion in assets in the U.S.[ii]

In addition to investment-related criteria, such as price/earnings ratio or revenue growth, investments are chosen to be a part of an ESG portfolio based on traits the companies have.

Companies who do the following would be excluded:

  • Demonstrate poor environmental performance or compliance
  • Demonstrate poor labor relations, including forced, compulsory or child labor
  • Exhibit a pattern of human rights violations
  • Manufacture tobacco products, alcohol or weapons
  • Abuse animals

Preference would be given to companies that may:

  • Show gender, racial and ethnic board diversity
  • Have esteemed corporate health and safety programs
  • Use innovative packaging to reduce waste management
  • Show good corporate governance
  • Exhibit responsible community involvement

"Social good" may be defined differently by every investor, and even a socially responsible fund may include multiple definitions of the types of companies that meet its investment objectives.

If you’re interested in discussing how Socially Responsible Investing can fit into your portfolio, please contact our office today.

Some of this material was prepared by Broadridge Communications.

The return on Socially Responsible Investments may be lower than if the adviser made decisions based solely on investment considerations.

[i] ThinkAdvisor, December 28, 2015. "The Growing Influence of Impact Investing.

[ii] *US SIF Foundation. Report on US Sustainable, Responsible and Impact Investing Trends 2016.

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