Some people think that being socially responsible and investing don’t mix. Over the past couple of decades, a new type of investing is challenging that notion. This is known as socially responsible investing, people who want to put their money to work the right way now have a number of viable options. Here we will discuss what socially responsible investing is, how it relates to environmental, social and governance investing (ESG) and how you can get started investing.
What is Socially Responsible Investing (SRI) ?
Socially Responsible Investing or SRI is an investing strategy where you seek to get return in companies that follow certain ethical or environmental guidelines while operating their business. Many times, people will invest in companies that run contrary to their core beliefs. SRI seeks to find companies whose operations are congruent to the investor’s ethics. I have a similar post on honesty in business that I would encourage you to check out after this one.
What is Environmental, Social, and Governance investing (ESG)?
When it comes to environment, social and governance investing or ESG, you are seeking companies who are making an active investment of time or money to improve society in certain ways. With ESG, the investment focus is in one or more of the following areas:
Environmental
The company seeks to create a product or service that will improve the environment.
Social
The company seeks to improve society through their products or their services.
Governance
The company’s overall leadership is diverse. They do not excessively pay their executives and focus on being responsive to shareholders.
What is the difference between Environmental, Social and Governance investing (ESG) and Socially Responsible Investing (SRI)?
Many investors believe that SRI investing and ESG investing are one in the same. However, there are some subtle differences between the two. Here’s a look at how SRI and ESG investing compare and contrast with each other:
- SRI seeks to exclude companies that do not meet certain standards such as unethical business practices, excessive executive pay or unfair worker conditions.
- ESG investing looks for companies that are actively following a set of ethical guidelines.
- SRI is a more “passive” approach while ESG is a more “active” approach.
How to get started with socially responsible investing
If you are looking to get started with Socially Responsible Investing, then you will be glad to know that there are a number of options available. Here’s a look at five of the top ways to get started with SRI.
Vanguard FTSE Social Index Fund Admiral (VFTNX)
This fund tracks the performance of the FTSE4Good US Select index. That index includes a number of large cap and mid-cap companies who focus on environment, social and corporate governance (ESG). The great thing about investing in a fund is the low fees. With the Vanguard FTSE Social Index Fund Admiral, you only pay a .12% expense ratio.
iShares MSCI Global Impact ETF (SDG)
If you are looking for global exposure to socially responsible companies, then you will want to take a look at the iShared MSCI Global Impact ETF. This exchange traded fund includes companies that are dedicated to reaching the United Nations’s Sustainable Development Goals. The expense ratio on this ETF is .49% which is a little higher than a mutual fund. However, with an ETF you can easily trade in and out of the asset.
iShares ESG Aware MSCI USA ETF (ESGU)
If you are looking for the top US companies that practice ESG governance, then you will want to consider the iShares ESG Aware MSCI USA ETF. This ETF does not include companies that produce civilian firearms, tobacco and controversial weapons. The expense ratio is pretty reasonable at .15%.
iShares Global Clean Energy ETF (ICLN)
There is a big movement when it comes to clean energy. This approach is not only ethical, it can also be lucrative for investors. The iShares Global Clean Energy ETF gives you exposure to some of the most innovative clean energy companies around the world. The ETF currently holds 30 clean energy companies that excludes any involvement with thermal coal and oil sands. As a more aggressive ETF, the expense ratio is higher at .46%.
Humankind US Stock ETF (HMKD)
Want exposure to lots of different companies that are making the world a better place? Then you will want to check out the Humankind US Stock ETF. In particular, this exchange traded fund gives you exposure to the top 100 U.S. based companies that practice ESG governance. Top sectors in this ETF include healthcare technology, electronic technology, technology services, and healthcare services.
You should consider each one of the SRI related funds and ETFs along with other funds. In addition, be sure to carefully check all the companies in the fund or the ETF to ensure that you are investing in companies that share your values. Please consult a financial advisor before making any investment decisions.
Disclaimer: I receive affiliate compensation for some of the links in this post at NO cost to you. However, these are the best tools I have used and tested. Accordingly, I believe are most effective for launching and running an online business. You can read our full affiliate disclosure in our privacy policy. Also, I am not a licensed advisor, any information within this article is purely my opinion and not an endorsement of an investing strategy.
How to ensure that you are investing in a socially responsible company?
Want to make sure that the company that you are investing in is socially responsible? Here are some steps that you can take:
1). Read the company’s prospectus – A prospectus is basically a sales brochure that tells you everything about the company from an investment point of view.
2). Visit the company’s website – You can find information about the company’s business in the “investor relations” section of their corporate website.
3). Check news feeds – Look up news feeds to see if there are any negative stories about the company’s executive pay, worker pay or environmental impacts on their business.
It’s always up to the investor to investigate a company. If you don’t have the time to do the research, then consider a SRI ETF or mutual fund. They have already done the research for you.
Become a socially responsible investor
With socially responsible investing, you can make money and feel good about it. Be sure to check the prospectus of any fund or ETF before you invest. With the right SRI portfolio, you may be able to reach your financial goals with a clear conscience. Also, make sure to check out my post on investing risks and make sure you gain as much financial education before making any financial decisions.
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