We all have social causes that we care about. But there can sometimes be divergence
in the causes we care about and our investment decisions. This does not have to be the
case. As investors, we can consider both financial return and social good, giving us a
chance to support the causes we care about, while diversifying our investment portfolios.
A rich history
Investing for social good has a rich history dating back thousands of years,
as people have long invested based on their values. In the United States, this
investment approach dates back to the mid-1700s, when the Quakers refused
to invest in any aspect of the slave trade and avoided investing in companies
involved in the liquor, tobacco or gambling industries—the so-called Sin Stocks.
Fast forward to the 1980s, and shareholders, citing their opposition to
apartheid-ruled South Africa, convinced U.S. companies to withdraw
from South Africa, which fueled an international boycott that brought
about change and helped lead to fair elections.
One in $3 is ESG-managed today
By assessing potential investments using
environmental, social and governance
(ESG) criteria, along with financial
performance metrics, investors can assign
“points” to companies whose practices align
with their values. More points translate to a
higher weighting in the target portfolio.
The ESG market is huge in the U.S. and
around the world. According to the Forum
for Sustainable and Responsible
Investment, one out of every three dollars
under professional management in the
United States is involved in ESG.1
The ESG criteria
In general, socially conscious investors seek to encourage corporate practices that promote
religious beliefs, environmental stewardship, consumer protection, human rights or diversity.
Money managers are incorporating ESG criteria into their investment analysis and decision-making.
ESG criteria can also be used to limit investment in areas that conflict with the investor's values.2
Different terminology, same idea
As you can surmise, there are as many
approaches to Socially Responsible Investing as
there are SRI investors, who may refer to SRI as:
Things to think about
Ruling out companies for practices that you disagree with does
occasionally result in diminished profits. In fact, a good financial
advisor will warn investors that their environmental and social
screens might result in leaving money on the table.
Further, as in all investing, having a broad diversification of your
investment portfolio is always important. Most financial advisors
will therefore recommend mutual funds that cater to socially
responsible principles for this reason. For example, investors who
see global climate change as a significant business and investment
risk can consider investing as part of the portfolio in environmentally
Investing according to your conscience can turn your portfolio into
a powerful agent for change you believe in.
If you are interested in socially responsible investing, ask your
financial advisor to help you find investments that match your values.
Important disclosure information
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
Forum for Sustainable and Responsible Investment. “SRI Basics.” https://www.ussif.org/sribasics.
Accessed July 2021.
US | SIF Foundation. “Report on US Sustainable, Responsible and Impact Investing Trends 2018.
”https://www.ussif.org/files/Trends/Trends 2018 executive summary FINAL.pdf. Accessed July 2019.
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