What positive practices in environmental friendliness, corporate governance, and positive employee relations make different companies qualified to be called “socially responsible”?
Socially conscious portfolios, even with a more limited selection of companies, can potentially perform just as well as other portfolios
Investors like to put their money to work in hopes of making more money. But some investors also like to add other initiatives to their quest for profits.
With socially conscious investing, growing the value of your portfolio is just the starting point for a broader plan that aligns with your values.
Socially conscious investing puts money into companies that prioritize initiatives considered beneficial for society. For example, some companies promote environmentally friendly practices. Others strive for a workplace with transparent management or positive policies for the labor force.
Some investors may think companies with socially conscious policies are at a disadvantage compared to those that don’t consider the social impact of their operations.
But other investors believe that strong moral practices can lead to better operational performance, which could positively influence a company’s stock and bond prices. Regardless of your stance, socially conscious companies seem to be gaining in popularity. A growing number of investors are seeking out socially conscious companies not only for their values but also for their growth potential.
You can start exploring socially responsible investing by defining your own values. Companies may be considered socially conscious for a number of reasons, so defining what’s important to you can help you identify socially conscious investment funds or companies that partially or fully match your values.
One way to find investments for a portfolio for socially responsible investing is by reviewing companies’ environmental, social, and governance (ESG) priorities:
Of course, when you invest in a company that matches your values, you have the advantage of incorporating your broader life goals into your financial goals. You may also enjoy potential gains on par with portfolios that don’t prioritize social initiatives.
On the other hand, a narrower focus can rule out investing in some industries, which can lead to a portfolio with more risk or that may experience more volatility.
By avoiding companies that don’t match their values, investors may miss out on significant gains. For example, investors who don’t invest in tobacco companies because of the health risks of tobacco products could potentially miss out on any gains in that sector. For some, the risk of missing out on those gains is worth the guarantee of investing with a socially responsible mindset. Others may not want to place limits on their investing opportunities.
If you’re investing in tandem with your values, you might want to review your holdings and check whether your portfolio includes the amount of diversity that’s appropriate for you and your risk tolerance.
Finally, socially conscious investors might want to keep a company’s overall financial performance in mind when reviewing investment opportunities. Knowing a company’s social values is a good starting point, but it’s also a good idea to review fundamental factors to help you find attractive investments to consider.
If you’re among the many investors who would like to become more socially responsible with your investing dollars, you might need to do some homework. Companies typically have governance reports and filings on their websites under Investor Relations. Or, if you’d prefer, consider letting a fund company or Registered Investment Advisor do the heavy lifting.
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