Socially responsible investing is an investment strategy that incorporates “environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact.” If you have investments (this includes 401ks), you are probably investing in industries such as private prison companies, tobacco, guns, and fossil fuels even though you may not know it. This means you are actively choosing to give your money to private prisons and gun manufacturers. I’m not sure about you, but I would much rather have my money support companies that have a positive social impact.
This is where socially responsible investing comes in. Socially responsible investing aka sustainable, responsible, and impact (SRI) investing aka environmental, social, and governance (ESG) investing. Though SRI has been around for decades, it has recently taken off. Fun fact - “the roots of socially responsible investing go back hundreds of years. In the 1700s, members of the Religious Society of Friends – better known as Quakers – refused to take part in the slave trade or to invest in weapons of war.”
Here’s a question we get a lot that is a common misconception about SRI. If I invest sustainably, does that mean I will have to sacrifice performance? NO. Not only do we believe that doing good translates to doing well financially, but “numerous academic and investor studies in recent years have found historically lower risk and even outperformance over the medium to long term for portfolios that integrated key ESG factors alongside rigorous financial analysis.” Spoiler alert, companies that, for example, cause oil spills and have to pay billions of dollars in court fees, penalties, and clean-up costs could turn out to be bad investments.
Think of SRI as a way to align your money with your values, to have a positive impact while achieving your financial goals. Your money can generate competitive returns while also supporting causes you are passionate about.
You can read more about how your investments can be more socially responsible in our post on the problem with index investing and target date funds. You can find our other posts here.