Why Consider Investing in SRI/ESG?

When you’re getting started with investing, it’s important to research the options available to you. One such option is Sustainable, Responsible, and Impact (SRI) investing (also known as Socially Responsible Investing), which enables you to grow your money while doing good and making you feel good about where your money is going. It allows you to invest in environmental, social, and governance (ESG) causes you care about. SRI and ESG investing has experienced significant growth in recent years. Sustainable, responsible, and impact investing offers a great way to boost your assets while also making a difference.

Sustainable, Responsible, and Impact investing, also known as ethical and green investing, is a way of investing while avoiding industries that negatively affect the environment and its people. This includes companies that produce or invest in coal, alcohol, tobacco, gambling, weapons, or other things that are thought to be detrimental to the environment or society. SRI involves investing in companies engaged in ethical and socially conscious practices, like environmental sustainability, and social justice. The goal of SRI investing is to work toward both positive change and financial gain.

HOW DOES SRI INVESTING WORK?

SRI is for investors who want to have a personal connection to their investments and want to invest their money in noble causes. This is accomplished by investing in companies that you feel have ethical business practices while also avoiding companies you believe don’t have ethical business practices, products, or services.

For example, if you think tobacco is bad for the world, you may avoid investing in companies that produce tobacco products or funds that invest in those companies. You may instead invest in companies that grow and make organic foods. If you’re against war or have a stance against gun violence, you would avoid investing in companies that produce weapons. You may instead choose to invest in a company that’s working to bring clean water to third-world countries.

SRI tends to follow political and social trends, which means in the past they were dedicated to women’s rights, civil rights, and anti-war efforts.. Now, SRI investors also focus on sustainable solutions to our 21st century challenges, including climate change and ethical business practices.

HOW CAN YOU INVEST RESPONSIBLY?

There are multiple ways to invest in good causes. Two of the most common are to research individual companies and invest in those you find to meet your environmental, social, and governance preferences, or you can invest in mutual funds, ETFs, and index funds that have an SRI/ESG theme.

Once you’ve decided to invest in SRI, decide what socially responsible, sustainable, and impact mean to you. Do you want to invest in companies that are considered green companies, such as clean energy? Do you want to invest in female-led companies? What about your moral, ethical, religious, and social values?

When investing in SRI it’s still important to seek positive financial returns. It’s important to recognize that while SRI may feel better than other money-making tactics, it still comes with risks. As with any investment, returns aren’t guaranteed. Assess the financial outlook of socially responsible investments as you would any other investment.

Investing in SRI doesn’t necessarily mean you have to give up returns to invest with your values. Many investors believe companies that practice good citizenship can yield greater returns than those that don’t.

In the past, some argued that taking an SRI approach to investing meant sacrificing returns, but SRI and ESG strategies have proven that they can be market-beating. The most basic approach, buying ETFs with an ESG focus, have yielded returns similar to their benchmarks. For example the Nuveen ESG Large-Cap Growth Fund (NKXQ) and iShares ESG MSCI USA (ESGU) beat the S&P 500 in 2019. 65% of sustainable funds ranked in the top half of their respective Morningstar category in 2019. 48% of large-cap blend sustainable funds beat the S&P 500 in 2019. By comparison, only 26% of large-cap blend funds beat the market in 2019. And so far in 2020 there are multiple SRI/ESG investments that are beating the S&P 500, proving that you don’t need to give up returns to invest with your values. As with any investment, though, risks remain and there is no guarantee of returns in any amount, beating the market or not.

WHERE DO YOU GO TO INVEST IN SRI?

If you have a desire to apply your values to your investments, but don’t know where to begin, Escient Financial offers a focus on SRI and ESG investing. Feel free to...