Socially Responsible Investing Guide

Have you ever thought about how your money can do more than grow in your bank account? What if it could also make the world a better place? That’s where socially responsible investing, or SRI, comes into play. It’s all about putting your money into companies that care about the environment, treat people fairly, and do business the right way.

In this quick guide, we’ll explore how you can start investing in a way that aligns with your values and helps you make a positive impact on the world. From understanding what SRI is all about to finding the right socially responsible companies to invest in, we’ve got you covered. Let’s discover how your investments can grow not just in value but in values, too.

Socially responsible investing — what is it?

Socially responsible investing (SRI), also known as social investing, ethical investing, green investing, and sustainable investing, is like choosing to spend your money in a way that does good for the world and also grows over time. It’s about picking companies to invest in that are not just about making profits but also care about making a positive impact on things like the environment and how they treat people.

At its core, socially responsible investing means you invest your money in businesses that try to do good in the world. These socially responsible companies might work on making the planet cleaner, treating their workers well, and being open and honest in how they do business. The best part is that investing in these companies can also lead to making money, making it a win-win situation.

How socially responsible investing grew in popularity

In the past, not many people knew about or practiced socially responsible investing. It was more about avoiding bad companies than finding good ones. However, as more people started caring about big issues like climate change and fairness in society, this way of investing got more attention. Now, it’s a big deal in the investing world, with lots of people and big companies wanting to invest in a way that’s good for both their wallets and the world.

This rise in popularity shows that you don’t have to choose between making money and doing good. With socially responsible investing, you can aim for both. It’s become a popular choice because it proves that investing isn’t just about the financial return; it’s also about supporting companies that are making a positive difference in the world. As this idea keeps growing, it opens up more opportunities for everyone to invest in a way that matches their values and helps the planet and its people.

Understanding the core ideas behind socially responsible investing

SRI revolves around the concept that our money should do more than grow—it should also support good causes and help solve societal and environmental issues. Let’s break down the main aspects that makeup SRI.

What does ESG stand for?

ESG stands for Environmental, Social, and Governance, three key areas that socially responsible investors look at before putting their money into a company.

Environmental

This is about how a company takes care of the planet. Does it do things to reduce pollution? Is it using clean energy? Companies that are good for the environment try to minimize their negative impact on the earth.

Social

This looks at how a company treats people—everyone from its workers to its customers and the wider community. Are the working conditions fair? Does it respect customer privacy? A company with strong social values cares about its impact on people.

Governance

This is about how a company is run. Are its leaders making decisions in an honest and responsible way? Is it clear about its business practices? Companies with good governance are those that you can trust to do the right thing, even when no one is watching.

How does ESG investing differ from SRI?

ESG investing and SRI are two ways people can think about their money and their values when they invest, but they have some key differences.

ESG investing looks at how a company’s actions affect the environment, how it treats people, and how it’s run. The main idea here is that companies that pay attention to these things might be less risky and could make more money over time. ESG investors use specific data to figure out which companies are doing well in these areas.

SRI, on the other hand, is more about matching your investments with your personal beliefs. If you don’t want to invest in companies that sell tobacco, make guns, or use fossil fuels, SRI helps you avoid those. It uses a process called positive and negative screening that picks out companies to either invest in or avoid based on what you believe is right or wrong. SRI investors also often speak up about their values, pushing companies to make changes that align with ethical standards.

How is SRI different from ordinary investing?

While ordinary investing focuses mainly on making money, socially responsible investing cares about how that money is made. SRI investors choose to put their money into companies that are trying to make a positive difference in the world alongside making a profit. They use positive and negative screening to choose what companies to invest in based on their core values.

Negative screening

Negative screening means choosing not to invest in certain businesses because they have a bad effect on society, like those involved with addictive substances, fossil fuels, guns, or other harmful products. It also means avoiding companies that don’t treat people right, use unfair work practices, or support unfair governments.

Positive screening

Opposite to negative screening, positive screening means picking companies to invest in because they’re doing good things, such as being environmentally friendly, treating their workers well, or being responsible in their business practices. Investors can check how well these companies are doing by looking at the information the companies share and other public data.

SRI is about thinking bigger—considering not just the financial return but also the kind of world we’re helping to build with our investments. SRI investors believe that by supporting companies that do good, they can see good returns on their investments while also contributing to positive change. This ethical investing strategy is a way of showing that you care about the future of the world and everyone in it.

The benefits of socially responsible investing

Choosing to invest socially responsibly has some great benefits for both your wallet and the planet. Let’s look at why putting your money into socially responsible investments can be a smart move.

Making money the right way

The cool part about socially responsible investing (SRI) is that you can earn money by investing in companies that care about doing good. Research shows that businesses paying attention to the environment, treating people well, and being properly managed can be just as successful, if not more, than those that don’t. So, you don’t have to sacrifice making money to support good causes; with SRI, you get both.

Helping the planet and people

By investing in companies that look after the environment and value people, you’re helping to make a positive impact. Your investment supports these good behaviours, encouraging more businesses to follow suit. It’s like saying, “I’ll invest in you because you’re doing the right thing,” which can lead to more and more companies trying to make positive changes.

Lowering your investment risks

Investing in companies that ignore the environment, treat their workers poorly, or have sketchy management comes with risks. They could be hit with fines, lose customers, or face other issues that could drop their value quickly. By choosing to invest in companies that act responsibly, you’re likely avoiding these risks, making your investment safer in the long run.

Where can you put your ethical investments?

Whether you’re interested in the flexibility of ETFs, the simplicity of a mutual fund, or the convenience of robo-advisors, there’s likely a socially responsible option that fits your needs. Here’s how you can get involved in SRI in Canada:

SRI exchange-traded funds (ETFs)

ETFs are a bit like baskets of stocks or bonds that you can buy and sell on the stock market. Socially responsible ETFs pick companies that do well in areas like taking care of the environment, treating people fairly, and running their business in a good way. They are known for having lower fees and allow you to trade them like regular stocks.

SRI mutual funds

Keeping some of your investment in safer options, like GICs, bonds or mutual funds, can help make your portfolio more stable. Mutual funds are less risky than other types of investments because they spread your money out over many different investments, lowering the risk compared to putting all your money into just one investment.

They’re also managed by professionals, so you don’t have to worry about picking the investments yourself. This option is great if you want to invest in a way that matches your values without having to do all the work.

Robo-advisors

Robo-advisors are online platforms that use computer algorithms to manage your investments for you based on your risk level and what you want to achieve with your investment. Many in Canada now let you choose to invest your money in a socially responsible way. They often use a mix of the SRI ETFs and mutual funds to create a portfolio that’s managed automatically, making it an easy way to start investing responsibly.

Here are some popular robo-advisors in Canada that offer SRI:

• Wealthsimple

• ModernAdvisor

• Questwealth Portfolios

• Justwealth

• BMO Smartfolio

• RBC InvestEase

Individual stocks

In Canada, you can invest in stocks using three types of accounts: Tax-Free Savings Accounts (TFSAs), Registered Retirement Savings Plans (RRSPs), and Registered Education Savings Plans (RESPs).

How to create a socially responsible investment portfolio

Creating socially responsible investment portfolios that are good for your finances and the world involves a few careful steps. Here’s how to build one that matches your values and aims for growth.

1. Decide what matters to you

First off, think about what’s important to you in terms of social and environmental issues. Is it fighting climate change, promoting fairness, or ensuring companies are run honestly? These priorities will guide your investment choices.

2. Research your options

Look into different socially responsible funds, stocks, and bonds. You want to find investments that have done well financially but also stick to good social and environmental practices. Research online, talk to financial advisors who know about socially responsible investing, and check out ratings that measure how companies perform on these issues.

3. Spread out your investments

To reduce risk, make sure you’re not putting all your money in one place. Your portfolio should have a mix of different types of investments, like stocks and mutual funds, and cover various industries and places around the world. This helps protect your money from ups and downs in the market. Remember to think about how all of your investments align with your values, not just a few. You have the power to make your entire investment portfolio reflect what you care about.

4. Pick your investments carefully

After finding some good options, take a closer look at how they stack up against your values and how well they’re expected to do financially. Take a closer look at how these companies operate regarding their impact on the planet, how they treat people, and how they manage their business. Choose the ones that best fit what you’re looking for.

5. Keep an eye on your portfolio

Investing isn’t a “set it and forget it” thing. Regularly check how your investments are doing to make sure they’re still in line with your values and making money. Be ready to make changes if a company no longer meets your standards or if there’s a better opportunity elsewhere.

The bottom line

Investing isn’t just for making more money; it’s also a strong way to back up what matters to you. Socially responsible investing proves that you can make money and still help the world. When you choose where to invest based on your values and what you think is right by picking companies and funds that look after the planet, treat everyone right, and run their businesses honestly, you’re helping make the world a better place for everyone.

Remember, every socially responsible investor can create change. The decisions you make now about where your money goes can build a better future.