Making money without compromising your values—that’s how most experts define socially responsible investing or SRI. This investing trend has encouraged a lot of people to put their money in companies that share their values and principles. It has grown significantly in the past 20 years, with trillions of SRI assets around the world. According to studies, SRI portfolios have stronger performance compared to other types of investments.
Socially responsible investing offers plenty of advantages—but probably the biggest is that it lets you pursue your desire to do good or support causes that you care about while pursuing your goal to create financial freedom. There is no conflict of interest; you can build your assets and make a difference at the same time.
So, how does socially responsible investing work?
SRI is just like any other type of investing, except that it takes into account company ethics and social responsibility. There are many strategies and standards that you can use when choosing and screening potential investments.
Negative screening
Being a socially responsible investor means avoiding industries and companies that are known to have negative impacts on the environment and people such as tobacco manufacturing, fossil fuel, and alcohol. Instead, you invest in companies that follow ethical and socially responsible practices. These include organizations that promote environmental sustainability, human health, animal welfare, and social justice.
The ESG criteria
When finding companies to invest in, investors need to consider three things: environmental, social, and governance. They are collectively known as the ESG criteria.
Using the environmental criterion means assessing companies based on how whether or not they are a good steward of nature. How do they use energy, manage waste, minimize pollution, treat animals, and conserve natural resources?
The social criterion examines how companies treat their employees, customers, partners, and suppliers. As an investor, you have to look at a company’s relationship with the communities where it operates.
Lastly, the governance criterion evaluates leadership styles. Do they use accurate and transparent accounting methods? Do all stockholders given the right to vote on important issues? What shareholder rights do they provide?
Most of the time, companies don’t pass every test in every category, so as an investor, you must decide which category is the most important for you.
About the Author:
Agronomics (LSE: ANIC), the AIM-listed investment company, remains the only UK based vehicle that provides the public with an opportunity to engage in a sector which is likely to become the future of our food. August saw Agronomics participate in BlueNalu’s latest fundraising round following the announcement of their First-of-its-Kind Commercialisation Strategy. When Jim Mellon and Anthony Chow return from attending the Good Food Conference, I am sure the September buzz for this hot sector will continue.
