How To Invest Sustainably And Socially Responsible

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Many people are constantly seeking ways to make the world a better place. From being more eco-friendly to using their wallet as a form of protest about poor working conditions for low-wage workers. Thanks to the internet, finding ways to improve life for your community or the world at large is easier to find out than ever before.

What a lot of people haven’t really considered is how their investments also affect the world around us. Many businesses make money that can translate into a robust stock portfolio that is not good stewards of the earth or are simply bad corporate neighbors for some communities.

Without knowing where your investment money is going when buying stocks you may be profiting off of bad behavior without even knowing it. Socially conscious investing is a thing and is gaining more popularity as time goes on. You can make a difference in the world without needing to sacrifice your retirement fund or investment portfolio.

In this article, I will go over how you can go about being a socially conscious investor that cares about sustainability.

Do your research

If you are doing your investing by buying individual stocks then this is fairly easy. It involves doing some research into the companies that fit your criteria for being a good choice for investing. If you are doing investing through an EFT then this is a little more complicated as it is usually fairly hands-off. You can check out Wealthsimple's ETF guide to get an idea of how they work.

When you are looking into the background of a company whose stocks you would like to buy, you should break it down into three sections. Look at their history when it comes to the environment, social aspect, and governance to see how they have done in the past. In fact, this type of research and investing is called ESG (Environmental, Social, Governance).

You may find some unseemly things when checking into the past of a company and realize that they have had environmental issues in which they’ve been fined by the government. If not, then you could at least look into their policies and see if they follow through in deeds in addition to words. Make sure that it recycles or that it has a paper-free office to mitigate any waste. Does it use resources wisely? Are they trying to lower their footprint?

For the social aspect, it comes down to how they treat their employees inside the company and even the human rights of people outside of it. For instance, if you are looking into a clothing company then make sure that they don’t use sweatshops overseas with underage workers or exploit lax labor laws. And see that they pay a fair wage to their factory workers no matter where they are. A company that does frequent layoffs may not be the best in terms of being socially conscious so factor that in as well.

With governance comes how the company is lead by the management and even the board. You’ll want to take a look at how the board usually votes on things to get a sense of what their priorities are. Of course, profits are the priority but if it always comes at the expense of their workers or other negative factors then this is a bad sign.

Mutual funds

Picking individual stocks to buy and hold can be complicatged and time consuming. It is not easy to let it run on autopilot, but the trade off is having total control over your investment. It isn’t recommended to put all of your money into one type of investment like individual stocks, however. It is highly recommended to diversify your portfolio.

Investing in mutual funds is a good way to bulk up your portfolio and spread out the risk. People looking to do ESG investing can sometimes have trouble with mutual funds since they are sort of indiscriminate with the companies that they invest in.

These days there are many mutual funds that are in line with the ESG concept and aree ideal for those that want to invest in a socially responsible way. In fact, they have gotten so widespread that you can narrow down your focus to one particular type of criteria if you wish. There are mutual funds that allow you to invest with one particular focus such as only green energy companies. Or, only companies that have their manufacturing in countries with strict labor laws. It all depends on what is most important to you.

There are now robo-advisor based apps that were built with the socially conscious investor in mind so it is very easy to do the right thing and make money without it taking up too much of your time.

Impact investing

There is another type of investing for those that are socially conscious in which you can make a idfference and still make money at the same time. This is called impact investing and it is a little more involved than just ESG.

Just about any ESG type of portfolio is a form of impact investing as you can have a ripple effect of doing good. Impact investing takes it a step further by allowing you to invest and make a more direct impact on your pet project. This means that you are actively investing specifically to have a positive effect with your money over doing no harm.

An example would be to invest in real estate in your city in a neighborhood that is run down and has some serious social problems for the residents. You are then able to make money while trying to make the community a better place.

Or, you may be interested in finding a company to invest in that is trying to create a product that helps resolve a specific environmental concern. As an investor you get shares which can help you vote to make sure the company sticks with its ESG principles, for example.