Socially responsible investing (SRI) refers to choosing investments based on how the company in question will affect society and the environment.
SRI can take many forms, but all SRI portfolios share two common principles: that companies should be held accountable for their actions and that certain assets are better investments than others.
This guide will teach you how to start building your own socially responsible investing portfolio from scratch, whether you are new to SRI or have been at it for years!
What exactly is SRI?
Socially responsible investing (SRI) is an investment approach that seeks to invest in companies that do not exploit the environment and are committed to contributing positively to society and the local community. SRI is about choice: for instance, choosing non-genetically modified foods and considering the environmental impact of certain products before purchasing them.
SRI has made major headway over the past few years as more people have become aware of its power. More than USD 12 trillion (almost one-third) of all professionally managed money is currently invested through some SRI strategy.
Socially responsible investing, or SRI, is an investment style that considers companies’ social and environmental consequences. Some benefits of SRI include:
- Having a greater understanding of how your investments are impacting society
- Knowing that your money is being used responsibly
- Not contributing to businesses you do not agree with
- Investing in innovative solutions to global problems like climate change and sustainable energy
Step 1: Understand your impact
We need money to live and, most importantly, to symbolize our worth. The risk is in your hands when you invest, regardless of how little or much you have. Know what you’re getting into before making an investment decision because every time someone invests their money, they contribute directly to economic growth, job creation, and societal changes.
Suppose we want good things for people living in poverty and less inequality. In that case, we need to realize that by investing responsibly, we can push society forward while still finding profit opportunities.
Step 2: Choose your sectors
Step two is choosing your sectors. You want an asset mix of four industries: sustainable energy, social good, renewable material, and healthcare. The exact ratios you choose are not set in stone, but one way to start is by allocating 50% of your investments in each sector.
Some potential ways to create this ratio include buying shares in companies or funds that directly or indirectly support those industries (we’ll get into how to research those investments below). Some resources include the Bloomberg Financial Markets Sustainable & Alternative Energy Index Fund and the MSCI USA Sustainable Index Fund.
Step 3: Find stock ideas
Search for businesses that are in line with your values. Simply typing the words socially responsible into Google will pull up plenty of results, as will more specific queries like socially responsible retailers. You can also browse through websites focusing on socially responsible investing or start your searches on Yahoo. Finance by using a stock ticker and the keywords socially responsible investing.
Step 4: Evaluate your portfolio
Evaluating your portfolio’s performance is important so you can see how well the stocks you own are performing in relation to the market. Rebalancing regularly helps avoid overweighting certain asset classes and industries, reduces the risk of investing too heavily in one company or sector, and ensures your holdings align with your investment goals.
Evaluate by checking each stock’s recent share price movements, overall market performance, and growth rates for different sectors. You may also consider obtaining buy/sell alerts through financial websites or service providers. This is an essential part of ongoing investor responsibility.
Step 5: Track performance
Many online tools allow you to track your portfolio performance and set up alerts so you can keep an eye on your money. There are also ways to use an app or spreadsheet and collect performance data over time.
Whichever method you choose, monitoring your investments regularly can help you spot changes in the financial climate quickly, assess whether certain actions would be in your best interest, adjust your strategy accordingly, and plan for retirement more confidently.
Hopefully, this has been helpful for you in building your socially responsible investing portfolio. As with any investment, it is important to have a long-term horizon and diversification so as not to be too exposed to volatility or one industry or geographic region.