How to Invest in a Socially Responsible Way

What ethical investing can look like for you

Traditionally, investing is hyper-focussed on just one result: making money. Often, investors, money-managers and consultants are so focused on finding a company that will give them the highest return on their investment, they don’t look closely at who a company is and how they generate money.

To combat this, investors and fund managers have started adding a variety of socially responsible requirements to their investment portfolios.

This is known as SRI or ESG investing.

What are SRI and ESG?

SRI and ESG are two investment acronyms that take into account environmental and societal concerns.

They stand for:

SRI – Socially Responsible Investing
ESG – Environmental, Social, and Governance

Some people may also refer to this as ethical investing.

As the acronym ESG suggests, ethical investments take a company’s environmental and social impact, as well as their governance standards into account, before making an investment.

Environmental criteria

The environmental impact of a company can be measured in a variety of ways, each designed to ensure the company is doing their best to have the gentlest impact on the natural world.

Environmental criteria can include:

Energy usage
Waste
Pollution
Natural resource usage
Treatment of animals

Social criteria

The social aspect of ethical investing is designed to measure the impact of a company on the society around it, specifically through its relationships.

Social criteria can include:

Working conditions
Employee remuneration
The suppliers it works with
Donations and community involvement
Working conditions

Governance criteria

Governance covers the leadership practices of a company. By tracking leadership, investors can see where a company is going, and how it’s moving toward its goals.

Governance criteria can include:

Accuracy and transparency of accounting methods
Conflicts of interest
Choice of board members
Political contributions
Legality of practices

How to find the right ESG fund

Ethical investing covers a wide range of investments and investment vehicles – each with their own focus. Not all funds will treat each of the three main categories the same. Some may focus more on the environmental impact of a company, while placing less weight on governance. Others may focus more on social criteria, or governance.

This is because there is no single regulator of investment vehicles branded as ‘ethical’, ESG or SRI.

That means the onus is on the investor (i.e. you) to ensure the funds chosen reflect their values.

As an investor, it’s essential to do your research, and to sit down with your financial advisor to discuss your expectations before investing in your money in an SRI or ESG fund. If you don’t do your homework, you may find your fund is investing in companies that you find irreputable, or who are working against your personal beliefs.

Increasing popularity with investors

As investors start to look beyond profit to see the impact companies have on society and the environment, more are opting to invest in more holistically-tracked and socially responsible investments.

This shift is gaining momentum, topping $1 trillion (USD) last year (2020). And, advisors predict this growth to continue into the future.

Balancing growth with responsibility

Of course, no matter how responsible ESG investments are, they don’t do investors any good unless they offer a high return on investment. The good news is, as more investors look at these types of investments, and society and governments focus on sustainable growth, these investments are doing – and will continue to do – well.

In fact, many are keeping up with the market, or even surpassing it, according to the Financial Times.

How can I invest in SRI funds?

SRI funds are just like any other – they are available from many apps, and any financial advisor or investor will have access to them. If you’re interested in investing in socially responsible funds, start by doing your research. Then speak with a financial adviser about making the transition.