SRI – Socially Responsible Investment
Thanks to an investment strategy known as Socially Responsible Investing (SRI), you really do have the potential to make money and make a difference, directing your investment dollars to companies that contribute positively to the world! More and more people are interested in leveraging their investment dollars for a greater cause by aligning their portfolios to better reflect their values.
In the traditional investment model, you diversify within a mix of investments with the primary goal of receiving the best return on your investment while reaching, if not exceeding, your financial goals as quickly as possible. But many of us would like to know more about the corporations we were investing in: does the end really justify the means? Do we really want to invest in companies whose practices we would morally oppose?
The Solidarity Capitalist
There are plenty of us “solidarity capitalists” out there! Socially responsible investing has become a booming market in both the US and Europe, with assets in socially assessed portfolios totaling $2.71 trillion in 2007 (up from the $2.16 trillion counted in 2003, according to the Social Investment Forum).
2007 Report on Trends in Socially Responsible Investing in the United States). So how do you go about finding investments that align with your values?
Do you agree with the operating policies of a company?
“Responsible” investing is as much about what you don’t buy as it is about what you do buy. Take a look at how a company operates and decide for yourself if you agree with their business practices. For example, you may want to assess how the company manages: worker safety, environmental practices, or investment in the community. Or you may want to eliminate any business that has exposure to guns, tobacco, gambling, or mining.
Green investment in a high growth market?
A second avenue for SRI to explore is to add to its portfolio growth companies focused on green technology or new energy that reflect its own belief system for the future. Green Investing is a fast growing market, and it simply means investing in companies that you believe are leading the way to a greener future; and avoid investing in companies that do not meet environmental criteria.
Becoming a green investor doesn’t have to mean investing in small, start-up companies that no one has heard of. Some of the places you are likely to shop regularly are on the list! Some examples of corporations that are leading the “green” effort are Starbucks and its “bean-to-cup” approach. They create ecological responsibility at every stage of their supply chain. Using recycled paper sleeves alone, they saved the equivalent of 78,000 trees in 2006. Another example is Whole Foods. The organic food giant was the first major US corporation to purchase enough wind energy credits to offset 100 percent of its electricity use!
A great book to pick up at your local Barnes & Noble is Green Investing: A Guide to Making Money Through Green Action by Jack Uldrich.
Microcredits
Microloans are another creative way to invest your money for the common good. Microloans are essentially giving very small loans to entrepreneurs who need help starting or growing a business. These companies are typically located in developing countries or poor areas with little or no access to loans from larger institutions. You may want to consider reading Banker to the Poor by Muhammad Yunus.
Of course, when you limit your investment to a particular sector or company, you take a lot of risk. And your investment risk is magnified when you consider investments in companies that are in highly competitive, nascent industries like renewable energy or organic food companies. I don’t want to sound like a broken record, but this is why diversification is the key to any investment portfolio!
So how do you navigate the risks and rewards of becoming a “Socially Responsible” investor?
Resurrect old rules:
o Do your homework.
o Do not invest money you cannot afford to lose
o Don’t put all your money in one industry or one company.
7 steps to help you choose the right investments
Many eco-friendly companies may not make much money for long, if at all, a fact of life in the startup world made more intense by the recession. But if you’re interested in getting involved in socially responsible investing, here are some easy tips to help you get started:
1. Make a list of your values.
2. Then list all the features of a potential investment that don’t align with your values.
3. Make a list of the sectors of the economy that you think could benefit from your investment.
4. Choose companies from those sectors that align with your values and eliminate those that do not.
5. From that list, choose the companies that outperform their peers financially.
6. Research online or go to your local Barnes & Nobles and read more about socially conscious investing.
7. Create an account. Open a retirement account or just a personal investment account and buy the investments chosen from your list.
Know your comfort zone
An individual investor, depending on their risk tolerance and need for socially conscious investment exposure, should be free to choose what percentage of their portfolio they would like to dedicate to SRI. Given the number of options available, one could achieve complete diversification using only socially conscious investments, and thus have the same level of risk as someone who might not have any desire to go down this path.
A financial advisor can also walk you through steps 1-7 to ensure you put your money to work in truly deep ways. No matter how you do it, isn’t it a relief to know that you can do it well… by doing good?
