Socially responsible investing is an investment strategy that attempts to minimize environmental and social risks and costs. It’s an important movement for the sustainable development goals and the future of the planet. Socially responsible investing is good for investors, good for the planet, and good for business.
It’s a win-win-win proposition. So, why isn’t everyone doing it? Why do relatively smaller percentage of financial professionals actually implement it in their personal portfolios? What are the pros and cons of socially responsible investing? Keep reading to find out.
What is Socially Responsible Investing?
Socially responsible investing is a way to address environmental, social, and governance (ESG) factors as you make investment decisions. It’s a philosophy, a set of guidelines, and a set of tools that attempt to ensure that investments align with your company’s social purpose and financial goals.
Socially responsible investing approach seeks to support a sustainable future while improving overall financial performance for investors. If you’re just getting started on your investment journey, it might be helpful to know what you’re trying to achieve.
The Benefits of Socially Responsible Investing
Socially responsible investing has a number of benefits for both investors and companies. Environmental and social impact also factors into the return on investment. Companies with a strong social purpose tend to perform better over the long term.
A recent study found that investing in socially responsible companies can provide significant financial benefits. In fact, the study found that investing in socially responsible companies increased investment returns by an average of 6.44%.
In addition, investors can feel good knowing that they are putting their money to work for the greater good.
Individual investors can also take advantage of the emerging trend of socially responsible investing exchange-traded funds. New options like SRI ETFs allow investors to diversify their portfolios with professionally curated options.
The Drawbacks of Socially Responsible Investing
Socially responsible investing has many benefits, but it also has some drawbacks. On the one hand, the extra time and effort required to ensure that your portfolio is well composed of socially responsible investments can be a challenge. In addition, if you don’t know where to turn, it can be difficult to find quality options.
How to Find Socially Responsible Investments
If you’re new to the concept of socially responsible investing, the challenge is clear: How do you find quality investments? The good news is that it’s not difficult. There are several resources available to help you find quality investments. Some of these options are listed below.
– SRI funds: You can find a variety of SRI trusts and funds. This can be a great option for investors that would like to invest in one or more specific areas. Each fund has specific, pre-determined investment criteria, so you can easily build a portfolio that addresses your particular needs and preferences.
– Invest in the stocks you pick: While it’s true that you can find quality stocks that are operating in socially responsible ways, it will require financial skills and much more of your time.
– Online brokers: There are a growing number of online brokers that provide SRI-focused offerings. These brokers often have more comprehensive offerings, and they can help you find the right options.
Should You Join the Movement?
Socially responsible investing is a way to increase your financial performance while having a sense of greater connection to the world around you. So, it can help you feel good too. If you’re interested in socially responsible investing, it’s a always a good idea to familiarize yourself with the essentials before start investing or seek professional advice from certified advisors.