Is Socially Responsible Investing Profitable?

Are you an investor that is socially conscious, “green” or ethical? Someone who wants to make sure your investment goes into a company that makes a difference?

If you are one of these types of investors, you may want to explore socially responsible investing (SRI).

Finding socially responsible stocks can be challenging. There are quite a few.

I do not want to list some as I do not want to tempt you to invest in those companies. However, you might want to look for investments that support and takes actions on issues such as:

  • No animal testing
  • Environmental practices
  • Human rights
  • Labor relations
  • No nuclear power
  • Product and worker safety
  • Workplace diversity
  • Avoiding gambling, mining, or weapons systems
  • Avoiding alcohol or tobacco sales

Many brokerage and financial service companies today have stock screeners as well as exchange traded funds (ETFs) and mutual fund screeners to help you find socially responsible themes.

These screeners designed to help you find securities based on what matters most to you.

Potential return

Socially responsible investments are still, of course, investments. To invest responsibly, investors must therefore consider the potential return. Investing in a stock that does not perform well is neither financially nor socially responsible.

Thus there’s no one-size-fits-all approach to SRIs. Below you will find some of the most popular investment methods with a social consciousness.

SRI funds: These actively eliminate investments that do not adhere to strict ethical guidelines via positive and negative screens. These funds may allocate a portion of their portfolio to charitable causes while abstaining from fossil fuel investments.

ESG funds: These factors in the material impact of investments, according to environmental, social, and governance-based practices. However, the primary evaluation criterion is financial return.

Impact funds: Every investment in these funds must have a positive social or environmental impact. The fund is established to advance social goals before financial gain.

Faith-based funds: This is ethical investing according to religiously prescribed precepts and guidelines.

Walking the walk

So is investing in social responsible investments profitable?

While there has been great performance in some individual socially responsible stocks, a disadvantage of SRI funds is that they have typically underperformed against the S&P 500 index as well as other large-cap indexes over the past 10 years.

It’s impossible to say if that trend will continue or change. As socially responsible investing becomes more common, such stocks may well begin to outpeform the whole market over time.

For now, if your values are important to you, then socially responsible investing allows you to put your money where your mouth is, so to say. It’s hard to insist you’re a committed environmentalist if part of your portfolio is invested in companies or industries that are destroying the environment.

By investing in socially responsible businesses, you’re doing more than talking the talk, you’re walking the walk.

As we all know too well, investing comes with uncertainty and that makes diversification and discipline even more important. Having a diversified portfolio within and across asset classes is the key to long-term success.

I strongly recommend that you speak to a financial planner to determine the best approach to your investments in terms of aligning with your objectives, wishes and needs.