What is socially responsible investing?
The demand for socially responsible investing has grown 33 percent since 2014, signaling increasing investor interest in making a positive difference in the world. Is this a passing fad or an investment factor worth considering?
SRI and ESG
Sustainable, responsible and impact investing (SRI) focuses on environmental, social and corporate governance (ESG) criteria in an effort to generate competitive financial returns long-term while also making a positive societal impact. It typically involves pruning your portfolio to exclude companies with political, religious, ethical or moral beliefs that conflict with your own. The idea is to incorporate large-scale intention into your personal financial investment plan.
The Millennial Effect
Gen Y investors seem to be the driving force behind this trend, with 70 percent citing charitable causes as a key concern in business transactions. But even if the attention is new, the practice of socially responsible investing is not. Quakers in the 1700s abstained from the slave trade for moral reasons, and investors of the 1990s expressed their displeasure with tobacco companies.
As analysts gather and review accumulating data on SRI performance, the main consensus seems to be that there are no significant costs or benefits to adopting this investment practice. There is one caveat, however: Funds designed to exclude "sin" sectors tend to lag in performance. But for morally minded investors who place a premium on the alignment of actions and values, this may be a small price to pay.
While socially responsible investing requires more background research into company business practices, the satisfaction you gain in knowing your principles aren't being compromised can be well worth the added effort.