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Making money and being socially responsible are not mutually exclusive. If you have a high level of ethics, that doesn’t mean that you have to either abandon your ethics or your will to make money.
There
is this idea that to be successful financially that you have to be cutthroat
and unemotional or you can forget about it. If you are somebody who cares about
doing good in the world, but still wants to be successful financially, the good
news is that it is entirely possible.
There are a lot of ways to make money these days so you can craft a portfolio that at least does no harm.
Whether you are investing for retirement or to just have money for the finer things in life, you should read on for the ways you can ethically invest.
What is Socially Responsible Investing?
On its face, socially responsible investing is when you do the research to find your best investment options in businesses that don’t act unsustainably towards the environment, government or socially.
This
is also called sustainable investing as you are looking for business and
investing opportunities that are not going to create problems while doing
business. An example of this would be if you were to make sure that any funds
you invest in wouldn’t be put into companies that are deforesting the Amazon,
or fossil fuels. Those practices make the world less livable for everybody so
any gains you may make would be at somebody’s expense either now or later.
In
some cases, your investment portfolio will not only do no harm but can also
bring about positive change. A renewable energy company will be putting people
to work and also creating a better future for the planet by not contributing to
global warming. Or, investing in a developing country’s infrastructure can help
increase the quality of life of people living in impoverished areas.
How Does it Work?
The
first step is to actually make the decision to not invest in companies that are
harmful to society and the environment. Once this decision is made then you are
already on the road to doing socially responsible investing.
But
it does need to go a bit further than that. It helps to identify the areas in
which you actually want to help. If you are concerned about the lives of people
of color and would like a chance to help, then make sure that is on top of the
list of your priorities.
If
your passion is about the environment, then you should list the ways that you
think the environment could benefit from good investments and focus your
attention there.
By
doing so, you will be able to find the funds that match your desires. There
will be socially responsible investment funds that are sustainable, yet don’t
align with your values. For instance, a fund may have divested itself from any
company that is in mining or fossil fuels, but still has stock in companies that
are used by dictators against their people.
When
you have a list, then you have to find the funds that tick many of the same
boxes of your list. It is unlikely that you can have a complete portfolio that
is 100% to your liking as far as companies go, but it is a good start.
Can a SRI Portfolio Perform Well?
There
is no reason why a sustainable investment strategy shouldn’t be able to make
you as much money as one that doesn’t take social responsibility into account.
With the way things are headed when it comes to renewable energy, some of these funds may even outperform traditional portfolios. The green sector is booming and is proving to be a very wise investment. Some banks are divesting completely from fossil fuel-based businesses so this should be an indication that things are heading in the opposite direction.
When
it comes to socially responsible investing, it can be trickier depending on how
the fund is organized. By having some strict criteria about how the companies
are organized in their management to include people of color, it may narrow the
scope of the fund and make it complicated. This doesn’t make it a bad investment;
it simply means that there is a possibility to make less money than if you
didn’t have a strict set of criteria.
Decide How Much Help You Want
You
have a choice of putting together your own portfolio so you can hunt down
exactly the stocks you want to buy that align with your values, or finding an
advisor that you trust to make the decisions for you.
In
the first case, you are far more in control of how your investments will be
made to make sure that you are only dealing with ethical institutions and will
be able to sleep well knowing you are making a difference. The downside is that
you will have to do a lot of research to make sure that businesses are actually
doing the good they promote themselves as doing. There is a thing called
greenwashing these days that makes it seem that they are being good stewards
while doing the opposite.
The other option of finding an advisor will make your life easier, but you have to trust that they will actually find the types of stocks that will be acceptable to you. You give up some control, but it also frees up your time by allowing them to do the legwork for you.
There are some advanced algorithms using robo-advisors and Artificial Intelligence that will be able to find those ethical companies and even buy the stock automatically.
Conclusion
As
you can see, being a socially responsible investor is going to be a bit of a
challenge, but in the end, it will help you feel good about the money that you
make by knowing that the world is not in worse shape due to your investments.
If
more people can do the same then we may see some real change in our lifetime.
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