Today, socially responsible investing – or developing an investment strategy that considers both positive financial gains and social good – is becoming increasingly popular. Investors are keen to place their capital in companies that operate using environmental, social and corporate governance (ESG) criteria – considerations for issues like diversity, sustainability and management structures.
If you, like many, have decided you want socially responsible investing to be a guiding principal for your portfolio, here are a few tips to get started.
Identify what’s important: While socially responsible investing – or SRI – is attractive, it’s not always easy to understand or define what it is. ESG criteria are subjective and some areas of focus – say, climate change – may mean more to you than to your fellow investors. Identify the areas that are most important to you and find companies whose ESG criteria align with your morals.
Do your research: As an investor, you will likely need to go beyond conducting traditional research on a company’s performance when considering investing in a new company. As you find companies in which you’re interested in investing, do some extra digging to review their ESGs and ensure they are executing on them.
Know the difference: As a socially responsible investor, you will need to keep in mind that the returns on your investments may differ from traditional investing. The impact may not be in your pocket, but instead the results may be more intangible. This shouldn’t sway you from participating: investing in socially responsible businesses can have real positive impact on communities, companies and their employees.
Don’t feel pressured: Whatever financial or investment decisions you make, be sure that you feel comfortable making them. Don’t be pressured by colleagues or friends to invest in companies they see as socially responsible if you don’t agree. Your investments should be your decisions and align with what is most important to you.
Not sure how to get started as a socially responsible investor? Visit a CERTIFIED FINANCIAL PLANNER™ professional to discuss your options.