{"id":1279,"date":"2019-07-01T00:00:00","date_gmt":"2019-07-01T00:00:00","guid":{"rendered":"https:\/\/qa.simplifimoney.com\/blog\/socially-responsible-investing\/"},"modified":"2024-11-18T10:23:40","modified_gmt":"2024-11-18T18:23:40","slug":"socially-responsible-investing","status":"publish","type":"post","link":"https:\/\/www.quicken.com\/blog\/socially-responsible-investing\/","title":{"rendered":"Socially Responsible Investing: 3 Things to Know"},"content":{"rendered":"\n

In today\u2019s investing world, socially responsible investing<\/a> (SRI) seems to be everywhere. While the modern practice of values-based investing dates back to the 60s\u2014when the civil rights movement led to the establishment of community development banks in low-income and minority communities\u2014 it\u2019s been gaining steam in recent years as investor demand climbs. <\/p>\n\n\n\n

Case in point – according to the US SIF<\/a> (The Forum for Sustainable and Responsible Investment), sustainable, responsible and impact investing grew more than 38 percent<\/a> from 2016 to 2018.<\/p>\n\n\n\n

But if you\u2019re new to the world of socially conscious investing, it can be daunting to know where to start. What exactly is socially responsible investing, and what do investors need to know before adding SRI funds to their portfolios? Here are three essential FAQs that every investor should read before they buy.<\/p>\n\n\n\n

1. What is Socially Responsible Investing?<\/h2>\n\n\n\n

Socially responsible investing<\/a> can be broadly defined as \u201cany investment strategy which seeks to consider both financial return and social\/environmental good to bring about social change.\u201d Though the concept is easy enough to understand\u2014choosing only to invest in companies that seek to benefit society\u2014it can be a tricky practice to navigate in the real world. <\/p>\n\n\n\n

For one thing, the concepts of \u201dsocial impact\u201d and \u201cfinancial gain\u201d aren\u2019t necessarily a match made in heaven. After all, not every values-driven company is a good investment. <\/p>\n\n\n\n

There\u2019s also the question of what makes a company \u201csocially responsible.\u201d According to Wikipedia<\/a>, the general goal of a values-based investor is to support companies that \u201cpromote environmental stewardship, consumer protection, human rights, and racial or gender diversity.\u201d <\/p>\n\n\n\n

In fact, to a large degree, social responsibility is in the eye (or pocketbook) of the beholder; your values may be very different from those of a family member or friend. For example, you may choose to invest in companies that support clean water initiatives, while your neighbors may prefer to invest in faith-based funds<\/a>.<\/p>\n\n\n\n

Regardless of your values and the causes you support, it\u2019s important to understand how values-based investing works so you can choose your strategy wisely. Let\u2019s take a look at the main categories of socially responsible investing.<\/p>\n\n\n\n

2. What Are the Different Types of Socially Responsible Investments? <\/h2>\n\n\n\n

Socially responsible investing typically falls into four main categories:<\/p>\n\n\n\n

1) Environmental, social and governance (ESG)<\/h3>\n\n\n\n

ESG investing<\/a> takes into consideration both financial and ethical concerns. Investors in ESGs typically value financial performance quite highly, but also factor in environmental, social, and governance issues when choosing their investments. <\/p>\n\n\n\n

2) Socially responsible investing (SRI)<\/h3>\n\n\n\n

SRI can refer to either the overarching practice of socially responsible investing or<\/em> one of its investing categories (see what we mean by tricky?). <\/p>\n\n\n\n

SRI uses ESG factors to screen investments based on ethical and moral criteria. The criteria is subjective and depends entirely on the values of the investor. With SRI, the investor applies negative screens to filter out certain companies and funds. For example, an investor may apply negative screens<\/a> to avoid investing in companies that manufacture products that are antithetical to her beliefs, such as tobacco or firearms.<\/p>\n\n\n\n

Unlike ESG, SRI prioritizes ethics over financial performance. Though investors in SRI funds still want their investments to perform well, they tend to prioritize principles above profit. <\/p>\n\n\n\n

3) Impact investing<\/h3>\n\n\n\n

Though still in its infancy as a strategy, many see impact investing as the key to a sustainable future<\/a>. A subset of SRI, impact investing is the inverse of negative screening in that it applies positive<\/em> screens to the process of investing instead of negative<\/em> ones. <\/p>\n\n\n\n

Also known as \u201csustainable,\u201d \u201cresponsible,\u201d and \u201cthematic\u201d investing, impact investing prioritizes positive outcomes over financial gain. According to Investopedia<\/a>, \u201c…[T]he objective of impact investing is to help a business or organization accomplish specific goals that are beneficial to society or the environment. Investing in a non-profit dedicated to the research and development of clean energy, regardless of whether success is guaranteed, is an example.\u201d <\/p>\n\n\n\n

4) Shareholder activism<\/h3>\n\n\n\n

Finally, shareholder activism is a form of socially responsible investing wherein a company\u2019s shareholders (and therefore partial owners) use their influence and rights to change a company\u2019s behavior in terms of social or environmental policies. Shareholders often employ a number of tactics to effect change, from filing resolutions, to publicizing their demands via the media, to threatening litigation if their efforts go unnoticed.<\/p>\n\n\n\n

3. How Do You Choose Socially Responsible Investments?<\/h2>\n\n\n\n

If you decide to pursue socially responsible investing, you may find it helpful to start by making a list of what issues and causes matter most to you. (The UN\u2019s list of sustainable goals<\/a> is a good jumping off point.) <\/p>\n\n\n\n

You may also want to review corporate governance and sustainability reports for the companies you\u2019re already invested in to ensure that none of them violate your values. If you do discover you\u2019re invested in companies or funds that don\u2019t support your ethical concerns, you can always choose to divest<\/a>. <\/p>\n\n\n\n

Whatever cause you wish to support, there are plenty of mutual funds<\/a>, private stocks<\/a>, and exchange-traded funds (ETFs)<\/a> that fit SRI criteria. You can choose to speak to a trusted financial advisor for advice on investments that match your interests, or you can seek out investment firms that cater to socially responsible investors. There are also a number of brokerages that offer SRI portfolio options. <\/p>\n\n\n\n

And if you\u2019d rather take a more DIY approach, investing apps<\/a> and roboadvisors<\/a> that specialize in socially responsible investing are now available to values-oriented investors. <\/p>\n\n\n\n

Is Socially Responsible Investing Worth the Effort? <\/h3>\n\n\n\n

Regardless of the companies or funds you choose to invest in, you\u2019re likely to feel good about the fact that you\u2019re putting your money where your mouth is\u2014even if some of your socially responsible investments<\/a> don\u2019t turn as much of a profit as investments you\u2019ve chosen purely for financial gain. <\/p>\n\n\n\n

Plus, there\u2019s really no hard evidence showing that socially responsible investing hurts performance, according to Morningstar analyst David Katham. \u201cIn the long run, it probably evens out.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

In today\u2019s investing world, socially responsible (SRI) seems to be everywhere. While the modern practice of values-based investing dates back to the 60s\u2014when the civil rights movement led to the establishment of community development banks in low-income and minority communities\u2014 it\u2019s been gaining steam in recent years as investor demand climbs.\u00a0<\/p>\n","protected":false},"author":59,"featured_media":1280,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_seopress_robots_primary_cat":"","_seopress_titles_title":"Socially Responsible Investing: 3 Fundamental FAQs | Quicken","_seopress_titles_desc":"Do you want your investments to support causes you care about? Socially responsible investing (SRI) allows you to invest with purpose. Learn about SRI funds and other ways to access values-based investments.","_seopress_robots_index":"","inline_featured_image":false,"footnotes":""},"categories":[106],"tags":[],"class_list":["post-1279","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing-retirement"],"acf":[],"jetpack_featured_media_url":"https:\/\/www.quicken.com\/blog\/wp-content\/uploads\/2022\/08\/QuickenSociallyResponsibleInvesting.jpg","_links":{"self":[{"href":"https:\/\/www.quicken.com\/blog\/wp-json\/wp\/v2\/posts\/1279","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.quicken.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.quicken.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.quicken.com\/blog\/wp-json\/wp\/v2\/users\/59"}],"replies":[{"embeddable":true,"href":"https:\/\/www.quicken.com\/blog\/wp-json\/wp\/v2\/comments?post=1279"}],"version-history":[{"count":2,"href":"https:\/\/www.quicken.com\/blog\/wp-json\/wp\/v2\/posts\/1279\/revisions"}],"predecessor-version":[{"id":4613,"href":"https:\/\/www.quicken.com\/blog\/wp-json\/wp\/v2\/posts\/1279\/revisions\/4613"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.quicken.com\/blog\/wp-json\/wp\/v2\/media\/1280"}],"wp:attachment":[{"href":"https:\/\/www.quicken.com\/blog\/wp-json\/wp\/v2\/media?parent=1279"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.quicken.com\/blog\/wp-json\/wp\/v2\/categories?post=1279"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.quicken.com\/blog\/wp-json\/wp\/v2\/tags?post=1279"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}