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When it comes to making a positive difference in the world, investing may not be the first thing that comes to mind. But socially responsible investing is easier and more effective than ever.
A growing number of investors are embracing socially responsible investing, also known as sustainable investing or impact investing. It’s a way to change something for the better and still make a profit.
What is socially responsible investing?
Socially responsible investing (SRI) is an investment strategy that supports you in making a positive impact and achieving a financial return on your investment.
The definition of what makes an investment socially responsible differs per individual investor.
Some socially responsible investors choose to invest in companies that focus on renewable energy sources. Others may look for companies engaged in social justice initiatives.
And some investors consider themselves socially responsible simply because they don’t invest in companies that violate their ethics, such as alcohol, firearms, or tobacco stocks.
Today, investing in companies that focus on issues such as social impact, sustainability, corporate social responsibility and other ESG (environmental, social and governance) factors is a growing trend.
As with any type of investment, social investing carries potential risks and returns.
Why is investing in social responsibility important?
Corporate social responsibility is important to business for many reasons. In addition to adding shareholder value, corporate social responsibility can improve morale and productivity. Corporate social responsibility contributes to the bottom line, which of course is profit.
However, corporate social responsibility also means making a more positive impact and at the same time making more profit.
A socially responsible investment strategy is becoming increasingly important for current generations. The expression “vote with your dollars” is becoming more and more common. Companies often lose business if there is a negative social impact.
In many cases, corporate social responsibility is simply good business practice.
Defining Socially Responsible Terms
What is sustainability? It seems to have become a recent buzzword around corporate social responsibility. So what is corporate social responsibility then? Learning about financial independence comes with its own vocabulary, and now SRI comes with its own set of terms.
Dictionary.com defines sustainability as the “quality of not harming the environment or depleting natural resources, thereby supporting the long-term ecological balance.” You often see companies in the agricultural and retail sector talking about sustainability.
Corporate Social Responsibility
According to Wikipedia, corporate social responsibility is “a form of self-regulation by international private companies that aims to contribute to the social causes of philanthropic, activist, or charitable organizations by participating in or supporting volunteerism.”
The Library of Congress contains a resource guide to company profiles and their corporate social responsibility rankings. You may already be familiar with some of these resources. The Better Business Bureau, the EPA, and Fortune Magazine are just a few that the Library of Congress Resource Guide mentions.
The Wall Street Journal also ranked the Top 250 Companies for Social Responsibility. The list included technology giants such as Microsoft, HP Inc., Intel Corp. and Cisco Systems Inc.
Similarities and Differences in ESG and SRI
Environmental, social & governance (ESG) differs from social responsibility in that the companies in an SRI fund are screened and given an ESG scorecard. As ESG indicates by name, the categories in which companies are scored are based on each focus:
Environment refers to environmental factors such as the impact on natural resources. Social refers to community aspects such as local community, employment, labor, health care, etc. Governance refers to how the businesses are run. The ethics of their business practice, diversity, wages and voting rights encompass this focus.
What is an ESG scorecard?
There is no standardized ESG scorecard, but several agencies have one. Different brokers may use a different agency to give their SRI funds an ESG scorecard. Each investment broker gives their ESG scorecards to different companies or uses an outside agency as there is no standard ESG scorecard.
Where can I find an SRI fund?
You can find an SRI fund from some of the most common brokers that many in the financial independence community invest in. Enhancement is one of the most popular options among novice investors.
Aside from direct investment in individual stocks, there are mutual funds and index funds that include SRI. There are even some index funds that include SRI. The financial independence community loves index funds for their low cost.
FinancialMechanic.com lists six specific examples of different concerns in SRI funds:
1. Corporate governance
2. Environmental impact
3. Workplace Practices
4. Product safety and impact
5. Human Rights
6. Impact on the community
If you’re looking for a specific focus or value, this list can make finding the right fund easier.
Alternatives to SRI Investments
There are other ways to invest ethically outside of an SRI fund. On the other hand, other extremes go against SRI investing. Investing in the blockchain and cryptocurrency can have negative effects on climate change and consume a large number of fossil fuels.
Make an impact at the local, state and federal levels
Financial expert Tanja Hester proposes a more direct approach to investing in socially responsible companies. One suggestion is to change where you bank. Tanja suggests looking at smaller local banks or credit unions.
She also has a few other suggestions for making an immediate impact, such as thinking about what you buy and where. It can be difficult to completely stop shopping at companies that don’t fit your values. However, minimizing purchases from these companies is an option to consider.
In addition to cutting costs, cutting utilities and putting pressure on businesses is another option. Speak out against the use of fossil fuels by utilities and demand a shift to more renewable or sustainable energy sources.
Demand is not just shifting from utilities and consumer companies. Tanja also suggests talking to the government at the state and federal levels. She also argues that advocating for policy change is “one of the most responsible investments you can make.”
Laura from richandresilientliving.com talks about her adventures in crowdfunding as an alternative to SRI funds. Laura shares a few different companies and websites such as Wefunder.com, Urban Juncture, and Tradefox. Laura also shares crowdfunding resources, such as buying a share of a farm, and her socially responsible investing mistakes.
How I invest in corporate social responsibility without realizing it
When I was researching socially responsible investing, I realized that I am making more of an impact than I ever imagined. After reading Tanja’s suggestions, I realized that I make an impact with small changes.
Changing consumption habits
The main change was improving my diet. By improving my diet, I started investing in companies that score slightly higher in terms of social responsibility. I also practice minimalism and try to buy high-quality, sustainable products rather than disposables. Using fewer resources to save money also has an impact.
I use less electricity whenever possible by keeping my heating and cooling at the highest or lowest point before discomfort occurs.
Buy from B Corporations
I buy from companies that are trying to be carbon neutral or reduce their carbon footprint. My dietary choices led me to buy food from companies that are humanely certified and practice regenerative farming. I’m in the process of learning more about and providing support to certified B-companies.
What is a Certified B Corporation?
B corporations certifications are international, privatized certificates issued by B Lab to companies with social and environmental performance that receive a minimum score from an assessment in these areas.
Investing in social responsibility and financial independence
Investing for financial independence and investing in social responsibility can seem counterproductive. However, as I became more aware of my purchases, it led me to more focused and value-based spending. This, in turn, led to a higher savings and investment rate.
Restricted access in different accounts
We may have limited access to SRI funds in our retirement accounts. Tami Mitchell, known on Twitter as @disabledgirlfi, states that she is limited to money in her ABLE account. This is troubling because she wants to invest responsibly, but is limited in her choices if she wants to invest for financial independence. Tami is making a social impact in her community by coordinating her local Buy Nothing group and other social investments. She has even helped ship unused medicines to those who can’t afford them.
Other employer-sponsored retirement plans often also have higher benefits and limited options. SRI funds may be limited or even unavailable in employer-sponsored retirement accounts. However, you can compare different positions in the broad index funds to the SRI funds and see how well they match.
Individual retirement accounts often have better choices with lower costs and also access to more SRI funds. This is an option if you want to start investing responsibly. There is also the route of exploring the many other alternatives discussed earlier. You can also always invest directly in companies that you value by purchasing their goods and services, buying stocks or looking at other investment options.
Research and due diligence
Like other investments, social investing involves risks. In addition to that risk, the financial performance of those investments may be lower than that of investing in broad index funds or other large mutual funds.
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This post Socially responsible investing: make the difference with your money
was original published at “https://millennialmoney.com/socially-responsible-investing/”