Learn about the trend toward investing in companies that promote social good
No longer satisfied with just looking at returns, investors are now using social good as a major criteria for evaluating potential securities. After all, investing at its root is about giving money to a company so that it can grow its revenue, operations, and profits. And if you are against, say, fossil fuels, you wouldn’t want to help that industry to grow. Instead, you might want to direct your money to industries that align with your beliefs.
According to the Global Impact Investing Network, impact investments are“investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return. The growing impact investment market provides capital to support solutions to the world's most pressing challenges in sectors such as sustainable agriculture, affordable housing, affordable and accessible healthcare, clean technology, and financial services.”
These investments aren’t only for social good. Investors demand the same performance from socially responsible investments (SRI) as conventional ones—and there is overwhelming evidence that they are getting it. And as business leaders wake up to the impact that water scarcity, climate change and global unrest can have on their bottom line, impact investing is no longer just altruistic—it’s smart long-term thinking. According to Forbes, SRI grew 22 percent in two years to $3.74 trillion in managed assets in 2013. In the U.S. $1 out of every $9 under professional management qualifies as a socially responsible investment.
There are many flavors of socially responsible investing. The most basic form is choosing a mutual fund or exchange-traded fund (ETFs track indexes like the NASDAQ-100 Index, S&P 500, Dow Jones) that avoids certain sectors—this is called a negative screen. You can also find funds that focus on a certain cause, such as the clean energy sector; that’s a positive screen. And many funds use a balanced approach, called a restricted screen, investing in corporations whose good actions outweigh the bad ones. You can find these funds through Morning Star, or try this free guide to socially responsible mutual funds.
No endorsement or connection is meant between those featured in this article and Chivas.