The Benefits of Socially Responsible Investing
by Douglas A. Feller
Most of us are aware of how specific investments in our portfolio relate to our overall financial goals. But we may not realize that our investments can also reflect our personal values. Socially responsible investing (SRI) offers an array of options designed to help us do good for society while helping grow our own assets.
As public consciousness of social and environmental issues has grown in recent years, so has the popularity of SRI—also called environmental, social and governance (ESG) investing. According to a recent Social Investment Forum Report on Socially Responsible Investing Trends in the United States, of the $25.1 trillion in U.S. investments, socially responsible outlays made up $2.7 trillion, or almost 11 percent.
SRI funds companies that support important causes and ethical business practices. For example, an investor might choose to fund firms that promote environmental protection, community development, workplace diversity and human rights. He or she could also decide to forego investing in companies involved in alcohol, tobacco, gambling, weapons, nuclear power or animal testing. The investment managers that create and oversee SRI portfolios evaluate companies according to specific values-based criteria, or “social screens”, allowing investors to appraise a potential investment vehicle based on its objectives.
Shareholders of socially responsible companies can also use their ownership rights to communicate with corporate management—through proposals, meetings and proxy voting—in an effort to influence policies and decisions. This type of activism can allow single investors to exert more influence than they typically could with other investments such as individual securities.
Asset allocation is the cornerstone of any investment plan, including a socially responsible one. Before incorporating SRI into a portfolio, it’s important for investors to consider its shortcomings, especially in the emerging markets asset class. Emerging markets investments are focused in developing countries, where many companies don’t meet SRI criteria. To ensure a balanced portfolio, one strategy is to select only one—or a few—investments that adhere to strict SRI criteria.
As SRI expands and evolves, investors will enjoy more opportunities to create positive social and environmental change with their money. A financial professional can explain the benefits and drawbacks of SRI and help provide guidance that aligns personal values with long-term financial goals.
Douglas A. Feller is a Chartered Financial Analyst and Certified Financial Planner with Investment Partners, LTD. Securities offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Investment Partners LTD is a Registered Investment Adviser. Connect with Feller at 614-761-9087 or invp.com.