In recent times, the stock market has witnessed the emergence of a new breed of investors who believe that in addition to getting a fair return, their investments should also make a positive difference to people’s lives and the environment. These investors seek to improve the quality of life on Earth by engaging in what is called socially responsible investing.
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What is socially responsible investing (SRI)?
This is an approach to investing that integrates personal and social values with investment decisions. It entails giving due consideration to the social and environmental consequences of investments.
Basically, in addition to their investment portfolio yielding a fair return, investors who partake in this kind of investing expect that the companies they invest in promote some of the following virtues:
- A clean environment
- A healthier society
- Equal employment opportunities and fair treatment of people
- Safe and useful products
- World peace and security
Current trends in SRI investing
Socially responsible investing is gaining momentum rapidly across different markets in the world.
Between 2016 and 2018, for example, total assets committed to sustainable and responsible investment strategies in Europe grew by 11% to reach $14.1 trillion (£10.7 trillion), according to the Global Sustainable Investment Alliance.
In the UK, a lot of investors are opting for ESG investing, which refers to investing strategies that take into account a company’s environmental, social and governance factors.
Last year alone, the number of ESG-related investments in the country rose by 40%. And in the first two quarters of 2020, investors across the UK injected more than £80bn into sustainable funds.
This is not actually surprising. Research by The Private Office shows that 85% of investors in the UK are interested in the concept of investing in ESG investments.
With research also showing that the average UK-ethical fund has outperformed the average non-ethical fund by more than 23% in the last 10 years, we can expect socially responsible investing to become more mainstream and gain even more momentum in the future.
How to get started with socially responsible investing
If you are wondering how to get started with socially responsible investing, it is not actually that hard. As long as you know the values that are important to you and are willing to do a little research, setting up an SRI portfolio is quite easy.
Here’s a simple three-step process to guide you.
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1. Clearly identify that values that are important to you
Consider your motivations for SRI and the social and environmental issues that are important to you. This will help you narrow down the investment products best suited to your needs.
For example, what type of company would you consider to be a deal-breaker? A tobacco company whose products are harmful to people’s health? Or do you perhaps just want to invest in companies with enough senior leadership and boardroom diversity?
2. Research companies that align with your goals and concerns
Once you are aware of what you what your priorities are, you can then start researching the available options. That means finding out which companies are socially responsible or whose values and actions align with your own.
Checking out social responsibility ratings for different publicly traded companies online is a good place to start. Additionally, visit company websites and check whether they publish corporate responsibility or sustainability reports that you can review.
Since you are also looking to make a return on your investment, don’t forget to check out their financial performance.
3. Open a share dealing account and create a portfolio
The next step is to open a share dealing account.
Once your account is open, you’ll find that there are several types of investment options for socially conscious investors. These range from individual stocks to mutual funds, exchange-traded funds (ETFs) and others. The actual number of socially responsible offerings will vary from one brokerage to another.
If you want to invest in funds rather than individual stocks, some brokers have tools to help you screen the funds available and find those that best fit your preferences.
You can also find out the fine details of different fund options by reading their prospectus. This should be available on the broker’s website.
If a fund takes social responsibility or concerns into account during the selection of its portfolio, it will be mentioned in the prospectus. Some funds are actually focused on areas of social responsibility, such as only investing in companies that use renewable energy.
After setting up your portfolio, it’s time to sit back and watch it grow, knowing that you’re also making the world a better place.
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