Have Some Money to Invest? Here’s How to Do It the Socially Responsible Way
From the skincare products you choose to the clothing you purchase, making decisions as a conscious consumer can not only help you feel good about how you move about in the world, but it can also have an impact on the world at large. Consumer choices can help drive corporations to enact changes in manufacturing practices, treatment of employees, environmental practices or even the very products they sell.
While it’s easy to consider your spending choices on concrete items such as clothing, many of us don’t think about the impact our 401(k) and other investments have on the world at large—but those choices are enormously influential. We’re delving into the world of socially responsible investing to discover what it is, why it matters—and how you can put your money toward investments that align with your personal, “do better” ethos.
What Is Socially Responsible Investing (SRI), Anyway?
With buzzwords like “conscious” and “ethical” being tossed about freely these days, it’s hard to discern the metrics behind these labels and how they should be applied. It seems that every industry likes to customize the definitions to suit their own ends, leaving the consumer guessing at the validity of such claims. But in the financial industry, user-friendly investment apps are taking the guesswork out of these words by adhering to a clear picture of what socially responsible investing is—and what it’s not.
SRI + Impact Investing, Defined
Lily Bowles, FSA and part of the Impact Research & Portfolio Management team at Swell Investing, says, “The technical term for conscious or sustainable investing is ‘socially responsible investing,’ an umbrella term that means an investor is taking into consideration the impact of their investment dollars on the environment and people that make up our world.”
Kate Chippendale, partnerships marketing manager at Wealthsimple, agrees, saying, “Socially Responsible Investing (SRI) means investing in companies that meet a certain threshold of social responsibility. Wealthsimple SRI portfolios allow our clients to invest in a better world without sacrificing their performance.” For example, the Wealthsimple team looks for companies with low carbon emissions, companies that support gender diversity and securities that promote affordable housing, amongst others.
There are a few different types of socially responsible investing, Lily explains. “The oldest and most common type is called ‘negative screening’ and it means taking out investments in things that are considered negative like firearms, tobacco and oil and gas,” she says. “Another type of socially responsible investing is called ‘ESG investing.’ That takes into account a company’s environmental, social and governance policies—meaning how does it treat the environment and its employees, and does it have a strong set of checks and balances in place in the C-suite?”
A commitment to SRI is at the core of Swell Investing, but the company is also committed to “impact investing” in its portfolios. “‘Impact investing’ goes beyond taking out the bad or filtering for the good,” says Lily, “and looks to actively create a positive outcome with an investment, often by looking at what business activities the company is deriving revenue from. The formal definition of impact investing is ‘an investment that seeks a positive social or environmental outcome, alongside a financial return.’” To that end, Lily says, Swell’s investment team combines ESG analysis, negative screening and impact investing in its approach to investing.
Aligning Your Beliefs with Investments
For many of us, conscious consumerism comes down to making choices that align with our beliefs: Toward what are we willing to put our money, and what it the long-term impact of this support? Though we may not view investing through the same lens, essentially, socially responsible investing is exactly that—choosing to put money toward investments that will make the world better in the long run.
“We hear all the time that people don’t realize the impact their investments can have,” Lily admits. “But think about this. If you have a 401(k) with your job or are putting aside cash to save for a house, that money is supporting the companies and industries in your investments. Those companies and industries have enormous power to change the world for the better–or not.”
The Bright Future of SRI
As more people begin investing in socially responsible companies, they’re also investing in a more sustainable future. This brighter outlook is a huge draw for both those looking to invest, and those who work in SRI investment.
More Options. More Opportunities for Good.
“There are a couple of places where impact investing is growing and developing that are really exciting for me,” says Lily. “In the past, impact investing was done largely through private equity and venture capital and the people doing it tended to be very wealthy. But today, you’re seeing more and more options available to the retail investor—people like you and me who might not be managing millions, but still want their money to achieve positive outcomes.”
Positive Impact + Proven Results
Kate shares Lily’s enthusiasm for SRI and cites its growing popularity over the past two decades as proof that socially conscious companies can perform well. “Socially responsible investing has become an increasingly popular way to invest, growing tenfold over the past 20 years—there are now $22 trillion in assets worldwide in SRI funds,” Kate shares.
In addition, socially responsible investing is gaining traction with publicly traded companies—something that excites Lily for its capacity to positively impact on a large scale. “Investments through venture capital or private equity into smaller companies that have a sustainable mission can create incredible impact, but it’s limited by scale,” Lily explains. “With large, publicly traded companies, the positive impact can be exponentially larger, because the companies themselves are larger. Investors have put more than $9.9 trillion into the S&P 500, a collection of the 500 largest companies in the world. That’s more than the GDPs of India, China and Russia combined. Think about the positive impact those dollars could have if investors began to demand more of the companies they invest in!”
Taking Steps Toward Socially Responsible Investing
For many, the mere thought of investing can be overwhelming enough to prevent them from taking any steps toward getting started—so we avoid the topic altogether. Many of us also have long-held beliefs that tens of thousands of dollars are needed before we can even think about investing. But thanks to today’s intuitive investment apps, taking that first step toward socially responsible investing can be easy, quick and painless—and often, doesn’t require a massive cash infusion.
Start Where You Are
“With any kind of investing, the most important thing is to start where you are,” Lily assures us. While you definitely don’t have to work in finance to start investing, she continues, you do need to understand where investing fits into your financial plan. “First, work on paying down any high interest debt (such as credit card debt) and stashing away an emergency fund with about three to sixth months worth of expenses,” she advises.
Wondering how much to invest?” Lily says this is a personal question and depends on your financial situation. “Obviously, more is better,” she says, “but even $50 to $100 per month can really grow when you’re putting it away consistently and investing in something like the stock market, which tends to return about seven percent over the long term.”
Looking for some inspiration to help you get started investing? Look no further than the rate of return with investing vs. saving. Says Lily, “The average savings account pays just one percent interest, but the stock market has returned around seven percent on average for the past few decades.”
Know Your Overall Financial Picture
For Kate, understanding your entire financial picture is an imperative step toward investing. The best part? Getting started can be fast—and free. Wealthsimple offers a complimentary Portfolio Review, which engages their expert advisers to review your statements and determine where your current financial plan may not be doing you any favors. Then, they can give you tips and next steps for the long run.
Set Your Goals
Having a goal in mind is also helpful when thinking about beginning your SRI journey. Think long-term: Where do you want to be with retirement on the horizon? What causes matter to you now that you would feel great about supporting with your money? “The most important thing for anyone getting started with investing is to imagine what they will use the money for,” Lily shares. “Think about yourself at 60. Will you want to continue in your current job, or do you want the chance to slow down and do something you love? Are you putting aside money for a particular goal like buying a house or your children’s education? Investing becomes so much easier once you have a goal in mind.”
Keeping the big picture at the forefront of your mind will help you decide which stocks to choose. “Once you have that goal in mind, you can visualize the impact that that money will have,” says Lily. “If you invest $50,000 for a down payment on a house, that’s $50,000 that will also be supporting the companies you’re investing in. Do you want it to go to companies that could negatively affect the environment or the people on our planet? Or would you rather they go to growing companies focused on growing our use of renewable energy or improving access to clean water?”
As socially responsible investing becomes more democratized due to user-friendly apps, low investment minimums and free enrollment, there is no shortage of opportunities for consumers and investors to impact the world in a positive, conscious and ethical way. The future of our planet just might depend on it.
Curious as to how entrepreneurs in the wellness space are making the world better while securing investments of their own? Discover our Business of Wellness series for inspiration.