People everywhere are concerned about our country, the world, its people and the environment. For these and other reasons, more people are investing their money to get back more than just a monetary return on their investment. Many are investing to make a positive impact in our country and around the world as well as to feel that societal concerns should be made an important part of their investment focus.
What is Socially Responsible Investing?
Socially Responsible Investing (SRI) is sometimes referred to as “sustainable”, “socially conscious”, “mission,” “green” or “ethical” investing. In general, socially responsible investors are looking to promote concepts and ideals that they feel strongly about. They accomplish this in 3 ways:
How is Socially Responsible Investing applied to investing?
The SRI approach is to invest in stocks and bonds from those companies and counties or municipalities that promote certain actions or eschew those, which participate in offending actions. It is not unlike the carrot and the stick premise; you reward those that you agree with by investing in their companies (the carrot) and avoid buying shares of those companies that offend your core values (the stick).
There are three general methods of screening an individual company for inclusion into an SRI fund; the Negative Screen, the Positive Screen and the Restricted Screen. A Negative Screen, for example, could be a fund manager’s conscious decision not to invest in a company that has any involvement within a particular sector, such as tobacco. Other SRI investments might seek out and invest only in those companies which are involved in activities that promote say “green living,” such as wind or solar power; those types of investment are then referred to as a “Positive Screen.”
Because many corporations tend to become highly diversified as they grow, SRI fund managers make use of a “Restricted Screen” type of filtration. In that way, though a small part of the corporation’s activities may be in a less than desirable sector because the amount is so small relative to the rest of the company’s holdings the SRI investment in the corporation would be permitted.
Socially Responsible Investing is Big Time!
Over the last two years, SRI investing has grown by more than 22% to $3.74 trillion in total managed assets, suggesting that investors are investing with their heart, as well as their head. In fact, about $1 of every $9 under professional management in the U.S. can be classified as an SRI investment.
Socially Responsible Investing investment options
When the time comes to invest you will find that you have several options. Traditionally, mutual funds have been the most common way to invest in SRI. Exchange Traded Funds or ETF’s have recently come out in the SRI format. Additionally, for hose investors with larger amounts to invest, Separately Managed Accounts may be an option.
How to get started with Socially Responsible Investing
If you are interested in ESG or Socially Responsible Investing, take some time to research the concepts online or read some books such as “The Complete Idiot’s Guide to Socially Responsible Investing” “Socially Responsible Investing for Dummies”.
If you are looking for professional advice, you may wish to use the services of a fee-only adviser where there are no commissions when you acquire the investments.
For more information contact Compass Asset Management Group, LLC at 845.563.0537or Contact@CompassAMG.com
The author of this blog, Steven M DiGregorio is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC a Federally Registered Investment Advisory Firm. Securities offered through an affiliated company Spire Securities, LLC a Registered Broker/Dealer and member FINRA/SIPC.