Invest in Values (and Value)? Social Responsibility is Trending

You might assume green initiatives are the core of socially responsible investing, but there’s a long list of factors that go into evaluating a company’s ethi agenda: How millennials and generation Z are into socially responsible investing
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When people think about socially responsible investing, the first thing that often comes to mind is the environment. Has a company cut back on its solid waste disposal? Did it buy a fleet of hybrid vehicles for its sales team? Have its offices been awarded with green business certifications?

But socially responsible investing can go way beyond being a good steward of the environment. In fact, many investors—notably younger ones—have their eyes on a long list of ethical guidelines that can sometimes be the deciding factor when they buy stocks. These criteria often include how companies treat their employees, whether the companies sell potentially harmful products like guns or cigarettes, and even whether the companies’ core values match investors’ religious beliefs.

“It’s a misnomer to think socially responsible investing is just about the environment,” said Nicole Sherrod, managing director of trading for TD Ameritrade. “Many investors are looking for fundamentally sound companies that are also good to their employees and doing actual good in the world.”

Who Are Socially Responsible Investors?

Although investors of all ages often care about the ethical commitments of companies, one particular set of investors seems most interested.

“Millennials and generation Z care a lot about socially responsible investing,” Sherrod said, referring to people born between the early 1980s and 2000 (millennials) and people born after the millennials (generation Z). “They’re often reluctant to invest in ’sin stocks,’ which sell products like alcohol, firearms, and tobacco. They want to put their investment capital behind a company that is going to effect positive change in the community they serve. It’s not just an investment philosophy. With younger investors, it’s becoming a movement.”

Finding Socially Responsible Investments

Whether you’re a millennial or someone older who also cares about social issues, there are plenty of tools online, including at TD Ameritrade, that can help investors find companies that align with their core values.

Investors interested in socially responsible mutual funds can screen at for funds that invest only in companies preselected for their ethics. Log into the website, click the Research & Ideas tab, click Mutual Funds, then click Create a Screen. This takes you to the page shown in figure 1, 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 on the TD Ameritrade platform. Investors can then further filter these results by other criteria.

Socially responsible mutual funds


Screening for socially responsible mutual funds on Data and image source: TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

How to Evaluate Individual Stocks for Social Responsibility

The TD Ameritrade site can be a resource for evaluating mutual funds for social responsibility. But for investors looking to purchase individual stocks who are interested in a company’s social awareness, another good place to research is a given company’s website. There, sometimes in the investor relations section but often on the home page, most companies provide a great deal of information about their social responsibility initiatives.

For instance, some companies are now explaining how they contribute to the environment and other philanthropy. When addressing the environment, companies might discuss ways they are working to reduce emissions, divert waste, and save water. Other companies might discuss land conservation programs, including efforts to help endangered species. 

There are more than 70 publicly traded companies in the restaurant sub-industry. Many investors in these companies want to know how they treat animals and companies are providing information on animal welfare initiatives and commitments to making a positive impact on the food system.

Some drug companies are discussing initiatives to provide access to medicine to all patients, regardless of their ability to pay.

The Social Investing Scorecard

Maybe you don’t care to chase companies that have a socially responsible foundation. So why should you care? “What we’re all trying to do is outperform the market,” Sherrod said. 

For investors who want an overview of companies rated by their social responsibility, a site called Good Company produces an online index that gives letter grades based on how companies act as employers, sellers, and stewards of the community and the environment. “A good company is one that starts with good intentions and then puts those into practice concretely through its actions in these three areas,” Good Company says on its site. It’s a tough index. Most companies haven’t fully achieved “good” status yet, the site says.

According to Good Company, socially responsible firms often do well in the markets.

Good Company index and SPX


Between late 2012 and late 2014, the Good Company portfolio outperformed the S&P 500 total return. Data and image source: Good Company. For illustrative purposes only. Past performance does not guarantee future results.

As with any investment, socially responsible companies aren’t guaranteed to do well in the market, but there have been times when they outperformed broad indexes. For instance, in figure 3, you can see that the Good Company portfolio outperformed the S&P 500 total return over a two-year period.

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