Investing With A ConscienceSubmitted by MIRUS Financial Partners on August 13th, 2018
More and more people are interested in socially responsible investing. Mirus Financial Partners defines socially responsible investing as financially investing in interests and companies that promote social, environmental, or even political concerns. Others include companies that don’t actively harm their social, ecological or political interests.
Socially conscious investing has also been called mission investing, ethical investing, double- or triple-bottom-line investing, green investing, sustainable investing, or impact investing.
No matter what you call it, you can support causes without forgoing a return on your money. The great thing about socially responsible investing is that, when done right, it allows you to protect your personal economic interests and while still contributing to the idea of a better world.
Back in the 1970s, socially responsible investing came to the forefront as large numbers of people and corporation took stands on highly charged political issues such as the Vietnam War or apartheid in South Africa. Investors began working to prevent their money from supporting policies that were counter to their beliefs.
We’ve come a long way since those days. Today, a wide variety of investment products have been developed as ways to help people invest in ways consistent with their beliefs. Socially conscious investing has also become the norm for colleges and universities, government pension and retirement funds, and many religious groups.
How to Evaluate Socially Conscious Investments
Of course, it’s crucial to evaluate investments on their social, environmental, and corporate governance practices. When evaluating investments, you’re able to rule out those companies with products, actions, or policies that conflict with your value system. For example, it’s common for socially responsible funds to exclude alcohol, tobacco, gambling, or defense funds. It’s also common for these types of funds to eliminate those are not environmentally friendly. Other fund work to exclude investments that represent countries considered to have repressive or racist governments.
While screening for negatives is one approach to socially responsible investing, choosing companies with positive aspects is another approach. Many funds identify companies whose practices promote a social ideal, such as protecting the environment or following a particular set of religious beliefs. A financial advisor can help you find and evaluate these kinds of investments.
Shareholder as Activists
More and more investors are “voting with their pocketbooks.” That means they’re supporting companies that do a good job of expressing their beliefs and refusing to spend money with companies that conflict with their ideals. Both individual and institutional shareholders have become adept at pressuring corporations to adopt socially responsible policies and practices.
Shareholder activism is now an important consideration in corporate governance. Shareholder activism, or advocacy, can take the form of filing shareholder resolutions on climate change, political contributions, environmental impact, labor practices and more.
When investors not only resolve to further a social good but also executes these goals in ways that use resources more efficiently, we call this impact investing. Impact investing uses benchmarking to compare returns, and actively monitors an investment’s ability to fulfills its social goals. Impact investments are sometimes made directly in an individual company or organization and may involve mentoring of its leaders. As a result, these unique investments may be classed as venture capital and private equity instead of within traditional assets such as stocks or bonds.
How Do You Choose the Causes in Which to Invest?
Socially responsible investors usually must choose between investing broadly or concentrate on a specific issue or area. A narrow focus might leave you exposed to risks within a single industry or company. Broader diversification could dilute the impact of your investment. Lean on the expertise of a good financial advisor to help you find the right mix for your situation and your risk tolerance.
Even if you’re especially knowledgeable about one area or one company, you’ll still need to evaluate its value as a stock. If you want to invest in a small company stock that’s closely aligned with your values, remember that smaller companies are usually more volatile, and therefore riskier. In these cases, it’s often a good idea to balance this strategy with an investment in larger companies that also meet your criteria while still offering stability and other less volatile business advantages.
Match Your Social Goals With Your Investing Goals
Be clear about the goals you have for your money, and then work on finding socially responsible investments that meet those goals. A financial advisor can help you with this kind of planning.
Many socially responsible investments could provide good financial returns, and many may not. Remember that past performance is never a guarantee of future results, but you should use past performance as a starting point to determine what kind of return you might expect.
In today’s environment, you don’t have to accept financial mediocrity in exchange for supporting your beliefs. Many companies today offer an attractive mix of socially conscious ethics and sound fiscal behavior. Others don’t. That’s why it’s so important to monitor your investment's performance, and be prepared to look elsewhere if your investment doesn't continue to meet your needs, either financially or philosophically.
Read more about socially conscious investing by checking out these Mirus Financial Blogs: