Socially Responsible Investing 101: A Guide to Building a Sustainable Portfolio

Socially responsible investing (SRI) has become a hot topic in the financial world over the last few years. In fact, it has grown in popularity over the past few years because the world is beginning to understand its importance.

It’s become such a top priority that the UN has introduced a special department dedicated to the idea. There are now over 1,500 SRI-compatible funds to choose from, and the industry is growing at an exponential rate.

Socially Responsible Investing 101

So, if you’re wondering what the fuss is about and if this is something you should be doing, read on – you might just learn something new about building a sustainable portfolio.

What Is Socially Responsible Investing?

Socially responsible investing is simply investing in companies that align with your values. For example, if you’re a socially conscious person who doesn’t like to support companies that harm the environment, you can invest in companies that care about the same things you do.

This is different from sustainable investing because SRI excludes investments in companies that are harmful to people and the environment. Instead, it is highly dependent on personal values and beliefs, which can vary widely.

The Different Types Of Socially Responsible Investments

The different types of socially responsible investments are what make it such a complicated topic. But you can expect them to all have the common goal of aligning your investments with your personal beliefs. For example, you might only invest in companies that are also members of the Ethical Society.

All in all, there are three main types of socially responsible investments. They include: 

  • Socially conscious investing– This type of investment is focused strictly on companies that align with your personal beliefs.
  • Socially responsible investing– This type of investment only invests in companies that align with your personal values, but it’s not as strict as socially conscious investing.
  • Socially impact investing– This type of investment invests in companies that would be considered both socially conscious and responsible in order to maximize the positive impact for society and the environment.

There are countless more specific subcategories of SRI with varying levels of strictness. Some investors only invest in companies that are members of a particular organization working towards achieving social change such as the World Wide Fund for Nature. Others are even more stringent and only invest in companies that are in line with their religious beliefs.

The idea is that by investing in companies that align with your personal beliefs and values, you’re helping to support the causes that are important to you. 

Why Is Socially Responsible Investing Important?

Socially responsible investing is important because it helps to support the causes that are important to you. More importantly, it will help you align your investments with your personal beliefs.

For example, let’s say that you care about the environment and want to invest in companies that are going to be good for the environment. One of these companies might be a solar panel company that utilizes sustainable resources like wind power and solar power. You could also invest in a company like Tesla Motors which is trying to bring more electric cars into the world.

If you love animals, there’s an SRI choice for you. If you care about human rights or education, there is too! There are many ways to be socially responsible, so take some time and really think about what issues are most important to you before deciding on your investment strategy

Not only is SRI a great way to support the causes that are important to you, but it’s also a smart financial decision. There are many different benefits of investing in companies that align with your values. For one, these companies tend to have better overall financial results.

On top of that, socially responsible investments tend to be safer than other investments due to the fact that you know exactly what you’re investing in. You can also see a clear benefit in terms of performance when looking at total returns over time.

How To Find Socially Responsible Investments

No matter what kind of SRI you’re investing in, it will take time to navigate the sea of companies out there. You can’t just invest in any company because every company is different and has different goals.

The first step to finding the right investments for you is figuring out what your financial goals are and what kind of investor you want to be. What do you want to save for? What do you want to spend on? Once you know what your financial goals are, it will be easier to determine how much risk you want to take with your investments.

Asking these questions is important because each type of investor will have different criteria for companies that they feel comfortable investing in.  For example, an environmentally-friendly investor might only invest in companies that are members of the World Wide Fund for Nature or the National Parks Conservation Association. On the other hand, a foodie investor might only invest in companies that sell healthy and organic products.

Regardless of your investing preferences, there’s a type of socially responsible investment out there for every kind of person.

You need to also decide if you want to invest solely in SRI funds or if you want to diversify your investments into traditional stocks, bonds, and mutual funds as well. The decision will depend on how much risk you’re willing to take when it comes to your money. If you’re uncomfortable with taking any risks at all then it would be best for you to stick entirely with SRI funds.  

The sooner you start, the sooner you’ll be on the right track.Just like you need a budget before you can buy groceries, you need a financial plan before you can invest your money.

Now that you have a clearer idea of where your money should go, it’s time to start looking at some potential investments that align with your values. Fortunately, there are a few tools out there that make it easy to identify the companies that align with your needs.

The most obvious tool for this is the Corporate Knights 100 Best Socially Responsible Companies list. This website has compiled a list of the 100 best SRI-friendly companies in Canada and is updated annually.

You can also check out the websites for Social Investment UK and US SRI Index, which both compile lists of the best socially responsible companies in their respective countries. You can search for listed companies by industry or country on these sites and then see which ones are top picks from consumers like you, as well as what percentage of revenue they donate to social causes.

Additionally, if you want to figure out how much each company would be worth if it wasn’t for its socially responsible investments, then check out The Value Investing Network’s “Socially Responsive Valuation” calculator.

Alternatively, they might use professional investment networks that let them find out about new opportunities and make trades directly with the company themselves.

With these methods, investors can typically get access to more information on their potential investments than they could get by speaking with an agent or broker face-to-face.

Is Socially Responsible Investing Worth It?

The question of whether or not socially responsible investing is worth it is a difficult one to answer. There are plenty of people who believe that companies that support a good cause are more likely to succeed than those without the same level of support, but there’s no conclusive evidence pointing to whether or not this is true. However, if you’re just looking for an easy way to feel good about your investments, then SRI might be worth it for you.

Another factor to consider when evaluating whether or not socially responsible investing is worth it for you is how much time and research you put into understanding the investment. If you put in the time and effort required for SRI, your returns might be better than if you didn’t bother with any sort of ethical guidelines at all. 

In summary, socially responsible investing might be worth it for some people but not others depending on their situation and what they need out of their investments.

The Bottom Line

As you can see, the concept of investing responsibly seems fairly simple. After all, why wouldn’t you invest in companies that support a good cause? While there are many reasons why it makes sense to invest responsibly, the most important is that you feel good about your decision.

A big plus that comes with SRI is that the more you invest with those companies, the more opportunities you’ll have to vote with your dollars and share your voice. That could mean voting on company policies, such as how they manage their environmental impact, or even what percentage of investors will be required to approve major decisions within an organization.

In the end, socially responsible investing is simply investing in companies that align with your personal values and beliefs. If you’re interested in investing responsibly, use this article as a guide to help you make the right decision for your investment portfolio.

Dragan Sutevski

Posted by Dragan Sutevski

Dragan Sutevski is a founder and CEO of Sutevski Consulting, creating business excellence through innovative thinking. Get more from Dragan on Twitter. Contact Dragan