Socially Responsible Investing
Two goals can run parallel to one another: making money and doing good in the world.
Socially responsible investing (SRI), sometimes known as "social investment," "sustainable investing," or "responsible investing," has been around for centuries, even though the terms now used for it are relatively new. Essentially, it's just investing in companies or funds that you believe can have a positive impact on some social issue or can effect positive change in the world, and choosing not to support companies that may engage in practices you don't support
Think of it as a potentially profitable activism that you're supporting with your money. Two goals run parallel to one another: making money and doing good in the world. If you engage in your SRI smartly, it certainly can be a win-win, but the reality is that, much like any other kind of investing, there is risk involved, and often the types of companies or funds that can effect real change in the world don't pay off right away. If you're looking for a quick payday, that's not what SRI is about.
Investing with Your Principles in Mind
SRI has been around at least since the 1700s, when Quakers prohibited members from participating in the slave trade. During the Vietnam War, people chose to boycott Dow and other chemical companies after a photo of a nine-year-old girl burned by napalm made headlines around the world.1
Today all types of entities, from individuals and venture capitalists to credit unions, foundations, hospitals, churches, and property funds, participate in socially responsible investing. SRI is a growing trend as the demand for corporate accountability has reached a tipping point. Not only are many more people interested in avoiding investment in companies with questionable records or business ethics, but an ever-increasing number of funds now cater to those who wish to responsibly invest their money.
The Forum for Sustainable and Responsible Investment2 states that mutual funds are one of the "most dynamic segments" within the Environmental, Societal, and Corporate governance (ESG) investing space, a branch of SRI. The Forum says the number of ESG mutual funds in the United States grew from 333 to 456 in 2014.2 Meanwhile, the combined assets from these funds grew from $641 billion to a whopping $1.93 trillion. That's an increase of more than 200 percent.
As of the end of 2013, over $6.57 trillion was invested based on SRI strategies. From 2012 to 2014, SRI grew by 76 percent, and accounted for over one out of every six dollars under professional management in the United States.
There are two established strategies for SRI. One is to consider ESG criteria while analyzing investments and creating portfolios. The other (specifically for people who own stock in publicly traded companies) is to file shareholder resolutions and engage in other ways as a shareholder. In many cases, both strategies can be utilized in tandem.
"Sustainable investing strategies work together to encourage responsible business practices and to allocate capital for social and environmental benefit across the economy," the Forum says.
If you truly want to maximize the "socially responsible" part of your socially responsible investing, do some research into the companies and/or funds you intend to invest in. Use the tools available to you online and speak with a professional. Don't be afraid to ask questions.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of Zions Bancorporation, N.A. Member FDIC