Socially Conscious? Ideas On How to Scout Possible Investments

A few years ago, several large U.S. and European medical companies found themselves embroiled in controversy.

An international furor had erupted after anti-death penalty protesters learned that these companies made medical products used in the U.S. capital punishment process, and many socially conscious investors and even a few investment banks threatened to withdraw their funds from the companies’ stocks.

In the end, the firms decided to either stop producing the products or make them more difficult for prisons to acquire. But the hubbub highlighted how socially responsible investors can often have an impact, and that goes well beyond the health care sector. It’s becoming far more common for investors to assess companies not only for their profit margins and financial guidance, but also for how their operations affect the environment, animal rights, worker rights, and just about any other social issue you can imagine.

“Socially responsible investing is starting to become really popular, and it’s influencing decision making for portfolio managers,” said Devin Ekberg, Managing Director of Education at the Investment Management Consultants Association (IMCA). “It used to be an institutional thing. Certain endowments, foundations, and pensions had very specific socially responsible investing constraints driven by an organization and its beliefs. Now it seems like even retail investors and broader audiences are interested.”

If you consider yourself a socially responsible investor, here are a few ways to evaluate potential investments for their impact on the social issues that matter most to you.

Responsible Sector Check

If you’re investing in individual stocks, it helps to know which issues affect the sector in question. Then you can drill down to specific companies and track companies by their social and environmental goals. Visit the home page of the company you’re evaluating and find the section—usually listed on the home page—that highlights corporate responsibility or stewardship. This is where companies house information on what they’re doing to try and improve the world. And just because the company you might have in mind isn’t in an industry typically associated with socially conscious investing doesn’t necessarily mean it isn’t dealing with such issues.

Whether it’s a health care company working on access to medication, an industrial firm trying to cut back on emissions, or an info tech company developing ways to protect its workers’ rights overseas, you can find it on their websites, in most cases. Just keep in mind that companies tend to put themselves in the best possible light in these sections. Look for something that’s more quantitative in order to get the full story.

For example, if you’re interested in the environment, find the document on the company’s corporate responsibilities page that shows its progress meeting environmental goals over the last few years. Many companies break this sort of thing down into different categories, such as how much they’ve reduced hazardous waste disposal, water use, or energy use. It will almost certainly be there, but you might have to spend some time scouting out the information.

If you’re interested in human rights, on the other hand, check the company’s home page for information on worker pay, especially overseas. Some companies have come under focus recently for their compensation practices, and by combing through their corporate responsibility pages, you might be able to determine how they’ve addressed any criticism. If not, search online news sites and see what comes up. Or listen to the company’s most recent earnings call, which might help put issues into perspective.

Evaluate with Online Tools

If you invest in mutual funds either on your own or through your 401(k), it’s getting easier to evaluate investments for their socially responsible status.

Take a look at some of the tools online—including at TD Ameritrade—that can help you find companies that align with your core environmental values. If you are an TD Ameritrade client, you can screen at tdameritrade.com for funds that invest only in companies preselected for their environmental ethics.

Log into your account, click the Research & Ideas tab, click Mutual Funds, then click Screener and Create a Screen. This takes you to a page where you can select Socially Responsible Funds so that only these fund types come up in a search result. There are more than 500 such funds offered through TD Ameritrade. 

“With the reporting capabilities that are being made more readily available through technology, it is becoming easier to effectively measure the repercussions of where we as investors direct our money,” wrote Deborah Winshel, global head of BlackRock Impact, in a recent blog post. “For example, my colleagues and I are laser-focused not on what makes a 'good' company or a 'bad' company, but which companies have a carbon footprint that is better than the index, or companies that are achieving environmental outcomes through green technology and innovation.”