Social responsibility and love for the environment go hand in hand. Surprisingly, so do social responsibility and love for ROI.
Contrary to popular belief, it’s absolutely possible to remain true to your most deeply held principles and earn a competitive return at the same time. The key lies in socially responsible investing, a discipline that (per USSIF, a U.S. social investing consortium) “considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact.”
Like all investing strategies, socially responsible investing isn’t for everyone. Before changing your portfolio allocations or adopting an entirely new approach to managing your money, check with a money management firm, ideally one that focuses on Canadian investors.
- You Care Passionately About Social Causes
If you didn’t have a passion for protecting the earth’s bounty, you probably wouldn’t be reading this. But socially responsible investing works best when it’s not focused on a single source of good.
The lowest-cost socially responsible funds tend to be broadly diversified, meaning they invest in dozens or even hundreds of friendly companies. If you’re investing in individual stocks, it’s in your interest to diversify your portfolio across a wide range of industries — meaning you’ll likely invest in some companies that benefit the environment, some that support social justice causes, some that aim to improve human health, some that empower individual consumers, and so on.
- You’re Willing to Take a More Active Approach to Money Management
No, you don’t have to embrace the wild, wonderful world of day trading. But you do have to take a certain degree of ownership over your funds. That’s because the most passive investing strategies tend to focus on index funds and other instruments that don’t filter for socially responsible status.
Put another way, the broader market isn’t yet quite responsible enough for socially responsible investors to put their trust in ultra low-cost passive strategies.
- You Care About More Than the Bottom Line
Are you willing to give up some return potential for the peace of mind that comes with knowing your money is in the right place? Then socially responsible investing is for you. To be clear, not all socially responsible investments underperform the broader market. But periods of relatively anemic performance aren’t out of the question, either — for instance, renewable energy stocks tend to underperform oil and gas stocks when energy prices are low.
- You’re Willing to Accept Some Risk
Every investment carries some measure of risk, of course. However, many socially responsible firms are riskier than their established, less responsible counterparts. Though the renewable energy industry has some titans, many green companies are relative newbies. Ditto for companies committed to social justice causes or charitable works.
- You’re Given the All Clear by Your Financial Advisor (Or Do Your Own Thorough Due Diligence)
Last, but not least: don’t switch up your investing strategy, even for a good cause, without first consulting a financial advisor or conducting your own due diligence. Socially responsible investments aren’t going anywhere, but you want to make sure you’re doing right by your hard-earned money.
Are you invested in any socially responsible instruments? Why or why not?
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