What You Should Know About Socially Responsible Investing

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What You Should Know About Socially Responsible Investing

24 June 2020
 Categories: Finance & Money, Blog

If you are new to the financial game of investing, then you may be wondering what you should invest in and how you should choose those investments. There are many different strategies to use for choosing investments and for getting your portfolio started. One such option is to make socially responsible investments. Learn about some of the facts you should know about socially responsible investing. Then, you can best decide if socially responsible investments are the way to go in your new investing endeavors.

What Is Socially Responsible Investing?

Socially responsible investing is a term used to describe an investment strategy in which investments are chosen based on the social good of the companies or funds being invested in. It could also be called ethical investing and is sometimes referred to as green investing. 

The idea is to avoid companies and industries that have a negative impact on people and/or the environment. Things like oil companies, for example, are not considered socially responsible companies because of their impact on the environment and people around the globe. As such, you would not want to invest in such companies if you were choosing to go the socially responsible route. 

How Do You Choose Socially Responsible Investments?

If you are interested in responsible investing, then you may be wondering how to ensure that your investments are in fact, socially responsible. There are criteria used in determining if something is a socially responsible investment. This is known as ESG (environmental, social, and governance) criteria.

These criteria will help you to determine if a company or fund is sustainable and socially responsible. You will need to look at the environmental impact of the company as well as its environmental policies. Do they participate in a carbon offsetting program, for example? Do they source materials sustainably? Do they give back to environmental causes? 

You will also want to look at their social impact. This includes the work culture for employees of the company, how they treat their factory workers or contract workers, how they deal with vendors and suppliers, and the like. It will also include whether they give back to or support social causes and programs. If they have a UNICEF program or a United Way program, for example, they are doing some social good. 

The governance criteria involve diversity in the company and in governance, whether their business practices are ethical or not, and other issues at the top levels of the company. 

How Can You Find out the ESG Criteria?

Generally, you will have to research a company in-depth to determine if they meet the ESG criteria. You will need to look at their financial records, corporate rosters, business motto, and more to find out all of this information. 

An alternative is to allow someone to do the work for you. If you work with a socially responsible investment advisor, they will do the heavy lifting of the research into companies and funds for you and give you a list of potential socially responsible investment opportunities to choose from. This will get you faster investment results and prevent you from spending hours pouring over business records. 

Now that you know some of the important facts about socially responsible investments, you can get your investing started right away.