What is Socially Responsible Investing?

This post was written by Latisha.

Is there a way to invest responsibly? As an investor in a stock or share of a company, you are financially supporting what that company does. But what if you don’t support their business morally? Can you think of a few companies that you would not invest in if you knew that they regularly dump oil in the ocean? What about a company that hires labor and puts their workers in unsafe working conditions?

Those are the questions that a socially responsible investor would ask themselves. As people around the world become more aware of what is going on in countries outside of their own, they are becoming more sensitive to fair, humane treatment for fellow human beings and the environment. In order to support those businesses that treat the environment with care and protect human rights, investors are funneling their dollars toward the stock of companies that are socially responsible.

How Can I Be a Socially Responsible Investor?

A socially responsible investor seeks to maximize financial return and social good. For example, before investing with a company you would research their business, as you should do anyway. But you would be looking for a corporation that is an environmental steward, protects consumers, supports human rights and diversity. You want a stock that will allow you to generate a gain but you also want to make sure that this company supports your values and morals.

How to Find Socially Responsible Investments

Locating the proper investments in order to create a socially responsible portfolio requires a few steps. First you have to decide what values you want these companies to have. Then you have to research those companies to verify that they are up to par.

Decide on the Investment Ethics

Most socially responsible investors immediately eliminate any ‘sin stocks’. These are companies that deal with tobacco, alcohol, gambling, adult entertainment, the military or weapons. Once you have screened out these firms, you will want to then screen based on performance. Research each stock the same way you would research any other stock. But there is one important point to remember; a company’s reach is not limited to what business it does, but also what business it owns.

Verify the Corporation Reach

A business may make your initial screen but it may own stock in a business that would not have met the criteria. In order to find out more about the reach of a business, you will have to dig into the financial statements. There you will be able to see where the firm has a ‘controlling interest’ or in other words, what businesses do they control significantly?

That could also work the other way. For example, lets say that you have eliminated a big oil company because you do not support the drilling of the oceans. Instead you have decided to invest in a small wind turbine company that is focused on creating sustainable energy from the wind. Once you start to do your research, you find out that the small alternative energy company that makes wind turbines is owned by the big nasty oil company. What should you do? Well, if you have decided to support the small company, remember that any benefit or growth will also be enjoyed by the oil company who you don’t support. In this case, you would not continue to support the wind turbine company.

Getting into sustainable investing requires effort and thought into what values and qualities that you require from the company you decide to invest in. You will have to research the investment carefully to find any affiliations and make sure that the company is really committed to the environment and their fellow human being.

Can you think of some socially responsible investments?


Comments

What is Socially Responsible Investing? — 18 Comments

  1. I suppose the definition of just what is socially responsible varies with the moral compass within each of us. I’m OK with some alcohol and tobacco stocks. I know that many other people despise them. I feel the same way about some agricultural stocks like Monsanto.

  2. Find what your value system is, align your portfolio with it.

    I don’t like Monsanto, I’m okay with defense stocks but can’t stand Dow Chemicals! Quirky, yes. But that’s *my* value system!

    • @Money Cone. Very true and I like how you said it here- align with your value system. The issue I find is that people don’t either know or pay attention their value system. They are willing to invest and support whatever gives them the biggest buck and don’t care how this investment afffects other people or the planet. For me, I think this is wrong- we should not operate or funciton in a way where we have disregard for those things. We should consider our impact on them in any decision that we make, including investing.

  3. There seem to be a lot of resources out there on the Internet devoted to socially responsible investing. Some mutual funds also market themselves as only investing in socially responsible companies.

  4. I feel like finding a truly socially responsible company to purchase stock in isn’t all that easy. Websites and financial statements will only tell you so much. Is it really possible to know the ins and outs without working there? And even then – you’re not always privy to the secrets.

  5. I find it disapointing when our multinational giants exploit the looser environmental regulations in other countries. Like exporting jobs to take advantage of low cost labor, exporting operations to exploit lesser regulations is lucrative. I expect more from our corporate leaders. Why not set one high standard?

  6. It does take a lot of digging, but it is possible. Sometimes you just see things in the news that make you sit up and take notice.

    I recently saw a story in the news about Hershey chocolate using foreign students as workers and grossly underpaying them. The students did not get enough in pay to even cover their costs of coming to the US. That offended me & I’ve switched to other brands of chocolate to buy. I certainly wouldn’t invest in their stock.

    It’s harder to know about items made in other countries–if they use prison labor or sweatshop labor. But you can find out quit a lot online.

  7. I remember reading that mutual funds that only invest in socially responsible investments have been large underperformers, so that has kept me out of that market. This could have change thought since I last checked…

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