Monday, December 22, 2014

Socially Responsible Investing: 5 Things You Need to Know

Socially responsible investing is a relatively new concept that can also be filed under “green” investing, “ethical” investing, “mission” investing, and a myriad of other monikers, and while it may seem to still exist beneath the radar of traditional investing, it actually accounts for as much as $7 trillion of all American investments. As concerns about the environment, sustainability, private prisons, Big Pharma, defense practices, and the like continue to grow within the United States people are more and more regularly bringing those concerns into the world of investing.

If you’re someone who would like to invest but want to be able to do it according to the guiding principles of your conscience, thanks to the rise of socially responsible investing, there are ways to manage your investment portfolio accordingly. Here are five realities about socially responsible investing that will help you get you acquainted with the concept.

1. You Can Choose SRI Funds

Due to the explosion of interest in socially responsible investing, it’s actually possible to sit down with your financial advisor and ask to only be directed toward investing in SRI funds. While there is no one-size-fits-all definition of what makes a fund socially responsible, because of people’s interest, most funds define themselves in a way that will make sense to you and your beliefs. In general, there are three popular methods of screening companies to see whether or not they qualify for inclusion in an SRI fund:
·         The Negative Screen. This type of screen refers to a fund manager’s intentional decision to not invest in any company that does business within a particular type of industry, from tobacco and guns to pornography and defense.
·         The Positive Screen. This screen includes only those companies that promote sustainability, such as wind or solar power.
·         The Restricted Screen. As companies diversify and grow, a restricted screen may be used. This type of screening allows a company with mostly “green” practices to have some activities that are less than desirable.

2. Find Companies With Cultures and Practices You Believe In

If you’re the type of person who likes to take charge of your investments, then it’s time to start doing research on the companies that have cultures, practices, and outcomes you want to promote. It’s equally important to look into all the companies you currently invest in to discover which ones don’t meet your standards. Whether you’re committed to organic farming, resuscitating a declining honeybee population, ensuring we have clean waterways, or finding means of sustainable and non-polluting energy, there are companies who need capital to accomplish those things. Many of them have excellent business models in addition, so you can do good and see a return on your investment.

3. Invest Locally

Regardless of where you live, the chances are good that some young entrepreneur with a great idea and a clear conscience needs capital to get her idea off the ground. Investing in businesses where you live is a great way to help produce quality businesses for your local economy that are in keeping with your values, provide jobs, and earn you a return. From restaurants that source from local farms to startup marketing firms that do pro bono work for non-profits, look into your local scene and see if there are ways to improve the world in your own backyard.

4. Just How Socially Responsible Are They?

Not every company that claims to be socially responsible may actually live up to the standards you have in mind. While they may not contribute to an industry you find distasteful, their own manufacturing or shipping practices may conflict with your ethically minded investing goals. It’s important to look into the details of how a company conducts business — not just the details of the business they conduct. While it will take a little more effort and narrow your investments options, if you really want to ensure your money is supporting good practices, it’s essential.

5. Consider Microfinancing

One of the quickest and easiest ways to invest in a socially responsible way is to do so through microfinancing. Microfinancing makes money available to low-income people in impoverished parts of the world where traditional banking is hard to come by. Through a small investment, individuals are able to start or improve small businesses in order to completely transform their lives and the lives of those around them. From buying a sewing machine in order to offer tailoring services to buying a yak in order to sell milk and cheese, these small loans can make huge difference in someone’s poverty level, and your investment will usually make you money, too.

So, go on — be a bleeding heart. Investing in your future can be a holistic decision, thanks to the rise of socially responsible investing.