For some, the idea of socially responsible investing seems to invite the notion that profits will be sacrificed. Though you may have heard that socially responsible investments underperform, it isn’t true–investments of all sorts require careful evaluation (Jason Hartman’s first commandment–educate thyself) in order to turn a profit.
Socially responsible investing began in biblical times with the advice that investors not fund things others thought to be immoral–pornography, gambling, tobacco, etc. Jump forward a few years to the 1960s when the political climate was such that individuals became interested in supporting only those causes which they they found worthy.
In the 70s and 80s, responsible investing began to experience unprecedented growth. As the world has developed into a more informed, political sphere, socially responsible investing shows no signs of slowing down. Passionate people are choosing to invest in a variety of things they truly believe in. From anti gun violence campaigns to environmental issues to more broad human rights causes, people are flexing their muscles with the almighty dollar.
Growing, growing, gone
In early 2010, socially responsible investments reached the $3 trillion mark, which is up 380% from 1995. Since 2005, this type of asset has grown by 34%–startling, considering that traditionally managed assets have grown by only 3%. Experts estimate that one of every eight dollars invested is done so with an attention to social responsibility.
The first strategy a socially responsible investor might use is positive and negative screening. If you’re looking for a company to invest in, you’ll actively seek out companies that are doing good. You’ll be looking for companies that demonstrate values and practices you are comfortable with–causes you champion.
You might also perform negative screening on companies. This will mean that you narrow your list of possible places to invest by excluding companies that disagree with your sensibilities. This might mean companies that produce alcohol get the boot, or it may be that you toss out a company that does not promote gender equality or practices sound environmental production.
You may also invest by shareholder activism, which means that you’ll try to encourage change in a corporation by speaking with management or filing shareholder resolutions to be voted on. This is a growing practice–many shareholder proposals are being put into action. One might also choose community investing, in which the capital is directly invested in with the intention of serving communities, but is done through local community banks and lenders.
Community Development Financial Institutions provide credit, equity, and capital to businesses who wouldn’t otherwise have access to these things. People love community investing because it has a direct and visible effect on a community and it’s well being.
Types of investments
There are a variety of mutual funds that have been designed specifically to align with social causes and values–whole companies are focusing on socially responsible investing. Other firms aren’t focused exclusively on socially responsible investing but offer it as a potential option. Of course, mutual funds can limit an investor. They’re expensive, include a number of additional fees, and are a bit of a gamble. They’re also passive investments, which aren’t for everyone.
You might also choose to invest in stocks and bonds, though it is extremely risky. The advantage is that you can carefully select companies based on the things you care about. However, you increase your risk by placing all of your investment money in one socially responsible company–so make sure you do your homework and research. Finally, there are alternative investments that include venture capital funds, private equity funds, hedge funds, and property funds.
There’s generally a high minimum investment, which makes these options available to only the wealthy. Hedge funds are managed and can have flexibility that isn’t present in a mutual fund. Socially responsible investing will continue to grow, and will likely be influenced by what is happening in the world around us. Climate change, gun control, and women’s health care will significantly impact the types of things people will or won’t give money to, and we’ll continue to see shifts as priorities change.
If you’re looking for an investment that is socially responsible, you won’t have to look far. You needn’t join a church group or volunteer organization (unless you’re personally interested in doing so!). Instead, turn to the internet for a lot of great resources to get you started on the path to socially responsible investing!
This site is dedicated to providing information about socially responsible investing. It describes itself as a personal finance site and features over 10,000 pages dedicated to helping you become a more responsible investor.
This website matched green entrepreneurs and investors, so it’s a great resource for those looking to invest in green/environmentally friendly places.
Prosper is the first peer-to-peer lending marketplace in America and currently has over two million members and over $1,000,000,000 in funded loans. The network allows people to invest in each other in a way that, as their website phrases it, “is financially and socially rewarding.”
The Modest Needs is a nonprofit founded in 2002 and works to assist families living just at or below the poverty level. People invest in the company and they create specific grants for specific situations. Cash is never handed over to families–instead, they offer particular items or services.
They don’t pursue or accept government funding and rely on generous investors. Will it make you money? No. But it might be a worthy investment and a great place to start! For additional resources, do a simple Google search–you’ll be surprised at the amount of information available to you! Do you invest in a socially responsible way? Share your experiences in the space below!
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The Young Wealth Team