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Millennials aren’t worried just about our financial future. We’re also worried about our global impact. We’re looking for responsible investment options — investments that can keep our planet sustainable for future generations.
Companies are taking note of these mindset shifts and changing practices to be better for the environment and humanity. And investment brokers are offering more responsible investing options as well.
If you’re unfamiliar or new to socially responsible investing or sustainability investing, I’ve written about it previously. In short, it involves investing in companies that are making a positive impact or lessening a negative impact in some way. For example, they may be trying to reduce their carbon footprint, go carbon neutral, repair rather than replace, etc.
Finding socially responsible companies isn’t an easy feat. It requires doing a lot of individual research.
The good news? With a higher demand for corporate social responsibility and sustainability investment options, more options are available.
How to Determine Whether a Company Is Socially Responsible
Determining whether a company is a socially responsible one can be difficult. There are no specific industry standards or guidelines. You may have to research companies that are listed in SRI (socially responsible investing) portfolios. What you determine to be socially responsible may not be the same as what the brokerage that hosts the funds considers sustainable.
One way you can determine if a company is socially responsible is to look at its website. Another is to see if they have a certified B corporation designation.
When choosing an investment company to use, the main brokerages usually have options for ethical investing. Many brokerages understand the growing demand for these types of funds. Many even have robo-advisor options available (discussed later).
How Can You Identify Socially Responsible Companies?
More and more investment brokers are helping to identify socially responsible companies. Those companies listed in an SRI portfolio often have an ESG scorecard. An ESG scorecard is a score given to a company based on Environmental, Social, and Governance factors. MSCI has a set of ESG indexes that can provide more information on ESG benchmarks.
Generally, a company’s website should have information on its corporate responsibility. Find its search bar. Try keywords such as:
- (Local) Community
- Giving Back
- Social Responsibility
- Corporate Responsibility
- Climate (Change)
These are just a few search terms to get you started. There are plenty more that you can use to find more information.
Why Should You Consider Socially Responsible Investing?
Socially responsible investing can create a positive social impact. Have you heard the phrase “voting with your dollars”? When companies create a negative social impact, we can make a difference by not investing in them.
A 2016 survey by U.S. Trust found that 51% of Baby Boomers believe ESG factors are important for investing. A staggering 93% of Millennials prefer ethical investing, with these factors playing a key role in their investment decision.
Socially responsible investing can better our planet and lessen our impact on climate change. By investing in renewable energy, we lessen our need for fossil fuels. By investing in businesses that focus on corporate social responsibility, we invest in company morale and productivity.
What Are the Goals of Socially Responsible Investment Companies?
The goals of socially responsible investment companies aren’t just meeting ESG criteria and sustainability. Like any investment company, profits are important.
Companies such as Swiss Re Group and Hermes Investment Management are finding profitability in ethical investing. Swiss Re Group research found that “high ESG ratings have better risk-return ratios.” Hermes Investment Management found companies that favor ESG factors often outperform those with negative ESG factors.
The goals for companies like Patagonia are not only to lessen the impact on our climate but also to improve conditions in our environment. Patagonia teams with multiple environmental groups to increase sustainability and corporate social responsibility.
How to Build a Socially Responsible Investment Portfolio
Research is always a good starting point. As I mentioned earlier, your idea of social responsibility may differ from your brokerage’s. The two brokerages I constantly see mentioned are Fidelity and Vanguard. Both have multiple options for getting started with an SRI portfolio with ESG scorecards.
If you want to “do good” without sacrificing returns, socially responsible investing is the way to go. McGill Business Review cites several studies that show sustainable and corporate socially responsible companies will outperform those that aren’t. Those same studies also show that some companies failed to recover to initial levels after environmental or social disasters.
Another good starting point is deciding which brokerage you want to start an investment portfolio with. If you already have any accounts with a big-name brokerage, try there. Many of the big-name brokerages have SRI portfolio options.
How Can You Get Started With Socially Responsible Investing?
If you’re not a DIY (Do-It-Yourself) investor, Betterment has a few options for you. Betterment offers several different SRI portfolio options, including Social and Broad Impact, Climate Impact, and more. I’ll discuss more robo options in detail later. Other robo-advisor brokerages include:
What Are the Types of Socially Responsible Investing?
Sustainable investing is one of many trends reshaping investing. According to author Grant Sabatier, sustainable investing is not getting enough hype. Many articles show trends of sustainable investing performing as well or greater than companies not focusing on sustainability and other ESG factors and corporate social responsibility.
Financialmechanic.com lists six different types of socially responsible investing:
- Corporate Governance
- Environmental Impact
- Workplace Practices
- Product Safety and Impact
- Human Rights
- Community Impact
What Are the Common Types of Sustainable Investments That Will Help You Build Your Investment Portfolio?
If you’re an index fund investor, there are a few index funds and ETFs (exchange-traded funds) that may be a good starting point for you. If you already have an account with Vanguard or Fidelity, here are three funds worth looking into:
- Vanguard ESG Stock Market ETF (ESGV)
- Fidelity US Sustainability Index Fund (FITLX)
- Fidelity Select Environment & Alternative Energy Portfolio (FSLEX)
If you’re a DIY investor and want to look at SRI company stocks, check out these options below:
Top Socially Responsible Investing Companies
How do you find the top socially responsible companies? Start with your pocket. Where do you spend your money? What are the company’s core values and beliefs? How is it reducing environmental waste? How is it supporting local communities? Does it show up in the major brokerages’ SRI funds?
Do you support any companies that are certified B corporations? Do you support any companies that show up in a mutual fund for Vanguard or Fidelity mentioned above?
What Are the Best-Known Socially Responsible Investing Companies?
Aside from the big-name brokerages, there are other investment companies you may have heard of. These well-known investment companies are also implementing SRI portfolio options.
Some of those well-known investing companies you may have heard of include:
- Goldman Sachs
- Morgan Stanley
- State Street Corp.
- Desjardins Group (Canada)
- Manulife (Canada)
- Canada Pension Plan Investment Board
What Top Socially Responsible Investing Companies Can Offer You the Best ROI?
Vanguard is well known for its tax-efficient funds. Another feature of Vanguard is it is investor-owned, rather than publicly owned. Therefore, its duty is to shareholders, rather than a board or other stakeholders.
Vanguard offers a hybrid robo advisor, called Personal Advisor. Along with featuring tax-loss harvesting, Personal Advisor is also a socially responsible service. If you want a hands-off approach with a robo advisor, but human support as well, Vanguard may be the company for you.
But Vanguard also has competition. As I describe below, TD Ameritrade also offers tax efficiency for your ROI. But this is just one of many factors to consider for the returns you may be looking for.
To find the best ROI for your financial and socially responsible investment goals, compare data. You may need to compare several funds to find the one that is right for you.
What Do the Top Socially Responsible Investing Companies Have in Common?
A quick comparison between ESGV, FITLX, and FSLEX shows several similar companies in the top holdings. Microsoft and Tesla are the two companies in all three funds. FSLEX is an Environment and Alternative Energy fund, so not all companies would be represented in all three mutual funds.
Some commonalities between these companies seem to be technology. The most common holdings rely on some form of technology or are in the technology sector.
ESGV and FITLX both contain companies such as:
Where to Find The Best-Performing Socially Responsible Investing Companies
Aside from the previously mentioned investment companies, other robo advisors can get you started in socially responsible investing.
Ally Invest offers many good options for the budget investor. It charges low fees and requires a $100 minimum investment (to avoid advisory fees). One of its robo options is socially responsible investing.
Wealthsimple offers socially responsible investing for $0 minimum. The downside, however, is that the fees are higher.
TD Ameritrade also offers a socially responsible investing option. The downside to this option is it comes with higher fees and minimums. The minimum is a lot lower with auto deposits. One advantage, however, is that this option offers tax-loss harvesting.
As I mentioned earlier, Vanguard and Betterment also have socially responsible robo advisor options.
Who Can Help You Find the Best-Performing Socially Responsible Investing Companies Online?
I’m finding more and more bloggers and personal finance creators with an interest in socially responsible investing. Richandresilientliving.com and financialmechanic.com are two sources I came across when starting my research on socially responsible investing.
Tanja Hester, author of Wallet Activism, is also one of the more well-known voices on socially responsible investing and “voting with your dollars.”
How Can You Find the Best-Performing Socially Responsible Investing Companies Online?
Start by looking at the funds mentioned above. Compare ESVG, FITLX, and FSLEX deeper. Take a look at the past performance of each fund. See what companies are in the holdings. Determine if the performance of the fund and the list of companies align with your values.
Compare the different options in the robo advisors mentioned above. See if those funds outperform Vanguard’s and Fidelity’s funds.
What Should You Avoid xWhen Looking For the Best-Performing Socially Responsible Investing Companies?
With any socially responsible investment, you should avoid any funds that invest in any companies not aligned with your values. If there is a company you are boycotting or that goes against your values and beliefs, avoid that fund. As socially responsible investing gains popularity, enough options should exist that you can avoid companies not aligned with your values.
Socially responsible investment funds that follow an index can be mimicked. If you enjoy learning about investing, this may be an option for you. Since most you can see most funds’ weighted holdings, you can create a similar fund. You can buy the individual stocks made up in that fund and remove the companies that don’t align with your values.