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Socially Responsible Investing Defined

When you’re getting started with investing, it’s important to research the options available to you. One such option, known as socially responsible investing (SRI), enables you to grow your money while doing good. It allows you to invest in social causes you care about. In fact, this type of investing has experienced significant growth in recent years. Socially responsible investments offer a great way to boost your assets while also making a difference.

What Is Socially Responsible Investing?

Socially responsible investing, also known as ethical and green investing, means avoiding industries that negatively affect the environment and its people. This includes companies that produce or invest in alcohol, tobacco, gambling and weapons. Instead, SRI involves investing in companies engaged in ethical and socially conscious themes, like environmental sustainability and social justice.

Some investors also consider SRI to stand for sustainable, responsible and impact investing. Regardless of your preferred definition, socially responsible investing works toward both positive change and financial gain.

How Does Socially Responsible Investing Work?

Socially responsible investing considers environmental, social and corporate governance, also known as ESG criteria. These criteria help many socially responsible investors decide which companies or funds to invest in. This includes companies that respect the environment, treat their employees and suppliers fairly and promote ethical policies. Some investors believe that companies that practice good citizenship can yield greater returns than those that don’t.

SRI works the same way as any other style of investing. But SRI adds company ethics and social responsibility into the equation, instead of simply putting your money into securities for growth. SRI tends to follow political and social trends. This means they’ve been dedicated to women’s rights, civil rights and anti-war efforts in the past. Now, socially responsible investors’ focus has shifted to mostly sustainable solutions to 21st century challenges. This includes climate change and ethical business practices.

How Can You Invest Responsibly?

socially responsible investing

You have several options available to you if you want to invest in good causes. For starters, you can make socially responsible investments individually or through socially conscious mutual funds, exchange-traded funds and index funds. You can use a robo-advisor, invest directly or participate in crowd or community investing. There is also a wide range of SRI products and asset classes, like public equity investments (stocks), cash and fixed income investments, like private equity or venture capital.

Start by identifying the level of risk you’re willing to take on. Consider your income and any current investments you have, including corporate-sponsored retirement plans. Then, define what “socially responsible,” “sustainable” and “impact” mean to you. Do you want to invest according to green energy or more in female-led companies? Think about your moral, ethical, religious and social values. You’ll also have to evaluate individual companies and investments by looking beyond financial statements. Measure their potential to impact a specific cause or movement.

You should still seek competitive financial returns when looking for socially responsible investments. It’s important to recognize that while SRI may feel better than other money-making tactics, it still comes with risks. As with any investment, returns aren’t guaranteed. Assess the financial outlook of socially responsible investments as you would any others.

Which Investment Firms Practice SRI

It isn’t always easy to determine which investments are strictly socially responsible. For instance, a company could practice ethical manufacturing processes, only to dispose of waste in an irresponsible way. Some companies boast that they support female empowerment, but don’t have any women on their board. It’s important to do your homework to be sure you’re investing in actually socially responsible institutions.

If you need some help figuring out which companies to invest in, an investment firm can come in handy. When you work with an investment firm, they’ll manage your portfolio for you, investing in truly ethical companies. Some names to start your investment firm search include Calvert Research and Management, Parnassus Investments, Oakmark Funds and SRI Investing. You may also want to check out the robo-advisor Swell Investing which focuses solely on impact investing.

Each firm has different impact strategies to find its clients financially healthy and rewarding investments. They pride themselves in contributing to the world while turning a profit. You could also turn to a financial advisor to help you get started or scale up your SRI investing. It helps to do some digging to find out which advisors will be the best fit for your financial goals, risk profile and principles.

The Bottom Line

Socially Responsible Investing Defined

For many investors, socially responsible investing is a powerful way to align their investment portfolios with their personal philosophies. Everyone can choose their own assets to buy shares in, but it’s good to know that socially responsible investing in an option. Before you make your next investment, consider what a company stands for in addition to what they might earn and how risky backing it may be.

Investing Tips

  • Investing isn’t always easy, especially when you want to maximize your earnings but don’t quite know how. In that case, it could make sense to sign up with a robo-advisor. The best robo-advisors manage your investments according to your preferences and finances with a focus on getting you the best returns. Plus, it’s all online which makes it convenient for those always on the go.
  • A traditional financial advisor may be the right fit for you if you’d prefer someone managing your investment in a hands-on way. Finding the right advisor for your specific needs can be challenging but SmartAsset can help with that. Our SmartAdvisor platform helps match people with advisors based on their location and financial needs. First you’ll answer a short series of questions about your finances and then we’ll match you with up to three advisors in your area. All advisors on our platform have been fully vetted and are fiduciaries, meaning they are legally required to act in your best interest at all times.

Photo credit: ©iStock.com/mapodile, ©iStock.com/Pinkypills, ©iStock.com/gradyreese

Liz Smith Liz Smith is a graduate of New York University and has been passionate about helping people make better financial decisions since her college days. Liz has been writing for SmartAsset for more than four years. Her areas of expertise include retirement, credit cards and savings. She also focuses on all money issues for millennials. Liz's articles have been featured across the web, including on AOL Finance, Business Insider and WNBC. The biggest personal finance mistake she sees people making: not contributing to retirement early in their careers.
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