6 second take: If you want to invest your money and help the world around you, then socially responsible investing may be for you.
This is a no-brainer: It’s good to be good.If you’re lucky enough to have cash to invest in the stock market, wouldn’t you want to do good with your money?
You can accomplish that by buying the stocks of corporations that are committed to being good citizens of Planet Earth. Say “eff you” to selfish, greedy companies that routinely pollute the environment, cheat their customers and workers, support extreme politics, and make products that kill us.
Plus, investing in socially responsible companies doesn’t mean that you’ll make less money. With this investment discipline, nice guys can finish first. Bleeding hearts can both earn a profit and protect the planet.
What Is Socially Responsible Investing?
Socially responsible investing — or SRI — is an umbrella term describing a slate of investing strategies focused on environmental, social, and corporate governance concerns (ESG).
The long-term goal is to make money while helping your fellow citizens.
As corny as that sounds, young investors are embracing the idea, and Wall Street — oh, the irony! — is responding.
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What’s ESG Again?
Think about it.
Environmental concerns: Respecting and being mindful of the planet’s power to sustain, dazzle, and destroy us.
Social concerns: How about companies that give back and nurture their communities rather than sucking the life out of them?
Corporate governance concerns: Mentoring and promoting more women and minorities into top leadership roles. That’s just a tiny sampling, but you get the picture.
The History of Socially Responsible Investing
The SRI movement first emerged in the 1970s when some investors began embracing the call to avoid buying the stocks of companies in the alcohol, firearms, gambling, and tobacco industries.
Today, this values-based approach has spread to environmental and societal causes like combatting climate change and reforming law enforcement and the justice system.
Why SRI Is Here to Stay
For a growing number of younger investors, investing with a conscience is now a guiding principle.
Older investors seem more willing to ignore the antisocial ways of successful companies as long as their stock prices increase. But for younger investors, betting on stocks is much more personal.
They don’t want to profit from amoral corporate behavior. Hundreds of billions of dollars are at stake. In fact, nearly $12 trillion is invested under ESG strategies, according to the Harvard Business Review.
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How to Invest in Socially Responsible Companies
Let’s say you have $500 to invest. The best option is to pick an investment fund that holds the stocks of companies committed to running on the ESG criteria.
There are thousands of funds to choose from.
Many are broadly focused and reactive, shunning companies that exploit our worst behaviors by trafficking in addictive products such as slot machines, cigarettes, and booze. Let’s not forget the manufacturers of guns and other weapons. They’re certainly on the ESG sh*t list.
Socially Responsible Investing Isn’t About Being a Hater
SRI isn’t all about punishing the profiteers of addiction and death. It’s also about rewarding companies that really care about the environment and their workers, customers, and communities. In short, companies that demonstrate a commitment to doing good every day.
Do your research. You’ll find many companies striving to be good citizens. Plus, you’ll discover that most make money at the same time.
How to Pick the Best SRI Investment Fund
Investment funds come in two packages: mutual funds and exchange-traded funds (ETFs). In my opinion, go with ETFs.
To find the best socially responsible investing ETF that suits your needs and values, check out the Morningstar Sustainability Rating system, which analyzes more than 20,000 mutual funds and ETFs to determine how well they adhere to the ESG principals while managing their investment risks and opportunities.
To simplify the whittling process, consider the largest ESG ETF, iShares MSCI KLD 400 Social ETF, as a starter.
Why SRI Trumps Traditional Investing
Sin does pay, so investors who go the SRI route may earn less money on their investments. But for many young investors, that tradeoff goes well beyond money — nothing beats the peace of mind you get when you side with the good guys.
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