So you’ve heard of investing, but have you heard of the new kid in town called “socially responsible” investing?
With the rise in climate change activism and protests against racial injustice, people are coming together and taking stances for the greater good. Whether it be donations to organizations that fight racism, or supporting socially responsible businesses, many are also putting their money where their mouth is.
Socially responsible investing (SRI) is an investing strategy that strives to generate both ethical change and financial returns for an investor. It tends to go by many names, including values-based investing, sustainable investing, and ethical investing. An alternative abbreviation of “SRI” also stands for sustainable, responsible and impact investing.
One example of a socially responsible investment is investing in green energy sources, such as wind and solar companies. Or if you’re interested in the advancement of women, people of color, and other marginalized groups, you’d might have some mutual funds that invest in women-run companies or hold stock in Black-owned businesses.
However, here’s the catch...
Socially responsible investments tend to mimic the political and social climate of the time. That’s an important risk for investors to understand because if an investment is based on a social value, then the investment might suffer if that social value falls out of favor among investors.
Due to this reason, many investors consider the Environmental, Social and Governance (ESG) factors when it comes to SRIs.
This type of investing is best suited for individuals who aren’t able to dedicate time or physical effort for social impact organizations. Instead, they can still make a difference by investing long term in these organizations.
If you’re interested in socially responsible investing, don’t just select investments by the typical metrics — performance, expenses, and etc. Try to invest based on whether a company’s revenue sources and business practices align with their values.
It all boils down to being intentional with the organizations and companies you invest in.
Remember two things…
Looking to make a difference? Use our free Explore Search to discover socially responsible companies that you can invest in.