Deciding how to invest your money isn’t something you should take lightly. After all, different investments come with varying implications and risks. On the other hand, it is possible to invest your money in something you can feel good about. That’s where socially responsible investing comes into play.
Also known as socially conscious investing, socially responsible investing, or SRI, is a strategy that promotes social good in conjunction with profit.Investors who identify as socially responsible typically aim to put their money into companies that better society, or, at the very least, operate in a manner that does no harm.
What Makes a Company Socially Responsible?
There are certain factors that most socially responsible investors look for when deciding where to put their money. These include, but aren’t limited to:
- Environmental impact. Some socially responsible investors favor companies that actively work to improve the environment. Others simply look for companies that don’t contribute to additional pollution.
- Public health. Some socially responsible investors make it their business to avoid companies that sell products such as tobacco and alcohol that are known to have negative health-related impacts.
- Morality. Many socially responsible investors will go out of their way to avoid companies that fall into a morally gray area. These might include proponents of gambling or makers of contraception, which some consider morally wrong.
- Peace. Some socially responsible investors will make certain to avoid companies that manufacture and distribute weapons.
How to Invest
If the idea of socially responsible investing appeals to you, you have several options. You can either seek out a company whose products or values align with your philosophy, or you can look for mutual funds with socially responsible strategies. You might also consider community investing, a subset of socially responsible investing that focuses on putting your money into low-income neighborhoods.
Vetting Your Investment
Those who adopt a socially responsible strategy tend to take one of two approaches. Some apply a negative screening strategy, where they reject companies or investment opportunities that don’t meet their personal standards. Others employ a positive screening strategy, where they choose companies whose products or philosophies they actively approve of.
If you’re an environmentally conscious person, you might use the negative screening approach to exclude a power company that releases waste and pollutes air quality. On the other hand, if you employ a positive screening strategy, you might actively choose a company that retrofits homes and buildings to make them more eco-friendly.
Don’t Forget About the Finances
While it’s noble to want to invest in a company you believe in, remember that the goal of socially responsible investing is also to make money. To that end, you’ll need to double your due diligence to make sure that the company you’re looking to invest in not only meets your social criteria, but is financially sound enough to warrant your hard-earned money. In this regard, socially responsible investing can be far more time-consuming than choosing a random stock or bond to purchase for your portfolio, but on an emotional level, there’s something to be said about sticking to your principles.