How to Invest in Sustainable and Socially Responsible Companies
An increasing number of investors are opting to put their money in companies that prioritize human rights, environmental initiatives and local communities – an approach known as socially responsible investing (SRI).
Some SRI strategies take steps to exclude industries engaged in controversial activities, such as gun manufacturing, tobacco production, gambling and nuclear energy development – this practice is known as negative screening.
1. Look for ESG (Environmental, Social and Governance) Scores
ESG investing examines how companies support workers, customers, community members, the environment and shareholders – typically the latter of which reap dividends to shareholders. As more investors seek this type of investing strategy, brokerage firms and mutual fund families have begun offering ESG-focused funds.
Investors can find ESG-focused funds at banks, investment advisors or online. ESG funds typically consider environmental, social and governance criteria in their analysis and security selection processes.
Critics of ESG scoring systems often claim they can be unfair. For instance, ratings agencies might award companies high scores for diversity while disregarding environmental damage they caused or their products’ addictiveness.
However, the industry is currently working towards setting standards and defining materiality so these issues can be considered alongside other financial considerations. Furthermore, some experts maintain that such considerations may help investors avoid costly mishaps like BP’s oil disaster and Volkswagen’s emissions scandal that cost those companies billions.
2. Research the Company
Investing in socially responsible companies is often an excellent way of supporting specific causes and initiatives. You can do this either directly by investing in individual companies, or indirectly through mutual funds and ETFs that focus on supporting those causes and initiatives.
There are various resources that enable you to enter the ticker number of any fund and review its performance against ESG metrics, including As You Sow and Sustainalytics. By doing this, they provide you with funds that match up with your personal values.
Another way to invest in socially responsible companies is by working with an advisor who understands both the benefits and challenges of responsible investing. A good financial advisor can also assist in selecting stocks or assets appropriate to your goals while creating a portfolio that balances risk with social good investments.
3. Invest in a Diversified Portfolio
Investment in socially and environmentally responsible companies is one way of creating wealth while benefitting society at large. This strategy, known as Socially Responsible Investing or SRI, can also increase wealth creation.
Early Socially Responsible Investment (SRI) focused on avoiding “sin stocks”, like tobacco, alcohol and gambling; today SRI can mean investing in companies committed to sustainable development goals, supporting animal welfare, promoting racial equality and protecting the environment while fighting human trafficking. You’ll find an array of SRI funds, mutual and ETFs at Betterment.
If you want to make an impactful investment decision, working with a financial advisor or using an SRI robo advisor could be key. By pooling investor resources with like-minded people who share similar concerns and desire for change, more powerfully pressuring companies for positive changes can be accomplished.
4. Be Flexible
When it comes to making sustainable and socially responsible choices, there are various ways you can act upon your beliefs. From supporting local businesses over big-box stores; buying fair trade coffee; or opting out of palm oil produced using slave labor to purchasing clothes made from brands who prioritize sustainability and ethical business practices – there is an array of actions you can take.
Investing in companies with good ESG ratings is another effective way to make an impactful statement about social responsibility and environmental stewardship. There are numerous online investment firms offering socially responsible investments that prioritize financial return while also taking into account important issues such as environmental sustainability, human rights violations and worker pay and treatment.
Betterment offers an easy and hands-off way to invest in a fairer future by avoiding sin sector industries like alcohol, tobacco and weapons; reducing climate impact; and supporting gender equality. You can even select investments with specific impacts like tree planting or carbon offsetting.