Explore Choices in Socially Conscious Investing

What positive practices in environmental friendliness, corporate governance, and positive employee relations make different companies qualified to be called “socially responsible”?

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5 min read
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Key Takeaways

  • Some investors prioritize companies with socially conscious policies, such as environmentally friendly initiatives
  • Socially conscious portfolios, even with a more limited selection of companies, can potentially perform just as well as other portfolios

  • Consider an investment’s overall potential, not just its socially conscious practices

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.

Developing a Portfolio for Socially Conscious Investing

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:

  • “E” is for Environmental. This includes a company’s role in climate change, carbon emissions, air pollution, water pollution, biodiversity, deforestation, energy efficiency, waste management, and water scarcity.
  • “S” is for Social. This includes considerations such as customer satisfaction, data protection, privacy protection, gender equality, diversity, employee engagement, community relations, human rights, and labor standards.
  • “G” is for Governance. This includes how the company manages climate boards, audit committees, bribery, corruption, executive compensation, lobbying, political contributions, and whistleblower schemes.

Pros and Cons of Socially Responsible Investing

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.

The Bottom Line

For investors who want to match their investments with their personal values, TD Ameritrade offers a number of socially-conscious investment choices. Here are a couple ideas to get you started.

  • Managed ESG Portfolios. TD Ameritrade Investment Management, LLC offers five Socially Aware Portfolios within Essential Portfolios, an automated investment (or so-called "robo-investing") offering. Socially Aware Portfolios invest in exchange-traded funds (ETFs) that target companies with a strong commitment to social responsibility. For more information, contact TD Ameritrade Investment Management at 888-310-7921 or read more about Essential Portfolios.
  • Mutual Fund Screeners. If you'd like to conduct your own search, one way to do it is to consider using a screener on tdameritrade.com. Log in to your account and under the Research & Ideas tab, select Screeners > Mutual Funds > Create a Screen. Under the Overview tab, select Socially Responsible Funds. Want to further whittle down your choice set? Choose from over 30 criteria until you find the right funds for you.

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 like TD Ameritrade Investment Management do the heavy lifting. 

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Key Takeaways

  • Some investors prioritize companies with socially conscious policies, such as environmentally friendly initiatives
  • Socially conscious portfolios, even with a more limited selection of companies, can potentially perform just as well as other portfolios

  • Consider an investment’s overall potential, not just its socially conscious practices
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