Understanding Socially Responsible Investing

At First Western, we know that you care about more than just the balance in your investment portfolios. When you invest, you consider risk, the long-term benefits to your family, the companies you support ideologically, and other factors beyond simple ROI.

Socially responsible investing (SRI) is an increasingly popular movement among high-net-worth individuals who are interested in building their portfolios around investments that support the environmental, governmental, and social causes that reflect the personal values of individual investors.

SRI isn’t a completely new concept — in fact, you probably already take into consideration many of the same factors in your daily shopping. Some shoppers prioritize organic foods because they don’t approve of the pesticide use of industrial farms. Some focus on American-made clothing to protest the use of sweatshops and child labor in third-world countries. Some only purchase certified conflict-free diamonds to avoid supporting companies that use forced labor. 

SRI applies the same principles to your investing portfolio. If you’re ready to take a closer look at your portfolio to align it with the values you hold closest to your heart, there are a few ways to get started.

Goals of Socially Responsible Investors

Every investor’s goals and values are different. The first step in implementing an SRI strategy is identifying which values you want to support with your financial investments. Common goals of socially responsible investors include:

  • Environmentalism: investors in this category prefer to invest in companies that minimize pollution and carbon dioxide production, use efficient machinery and supply chains, and make an effort to divest from fossil fuels.
  • Social Justice: investing with a focus on social justice might mean avoiding countries headquartered in countries with questionable human rights records. Other investors are focused on labor rights and working conditions at individual companies.
  • Peace-making: peace investors refuse to support armed conflict, avoiding any companies that make weapons or contract their services to the military in any country.
  • Health: health-focused investors prefer to invest their money in companies that promote health and wellness. Some refuse to invest in tobacco or alcohol companies, while others prefer to focus on companies that are funding medical research. Health investing often has a strong overlap with environmental investing.
  • Morality: so-called “sin stocks” include companies in industries that many investors find morally objectionable, including tobacco and alcohol production, gambling, pornography, or contraception.

Approaches to SRI

Socially responsible investors rely on four major approaches to finding their investments:

  • Negative screening: this approach avoids companies that don’t share the values you hold most closely. You might invest in mutual funds or ETFs that screen out tobacco companies, for example.
  • Positive investing: is the opposite approach of negative investing — seeking out companies that embody the values you find important. For example, an environmentally-conscious investor might focus on companies that have signed the CERES principle, a code of environmental conduct developed in 1989.
  • Community investing: is an effort to inject funds into local communities, especially in low-income areas. These investments focus on loans to people and small businesses that would have trouble obtaining them otherwise. Community investing might also be directed toward making communities more sustainable by funding green energy, affordable housing, and smart growth.
  • Shareholder action: is a means by which investors attempt to influence the behavior of the companies they’re currently invested in by filing shareholder resolutions. Under the Securities and Exchange Act of 1934, any investor or group of investors who own more than 1 percent of a company’s stock can submit a proposal that must be voted on at the next shareholder meeting. For example, a group of shareholders might ask that a company disclose all its political donations to ensure that the company isn’t donating to candidates that investors don’t agree with.

Talk to First Western

With the increasing popularity of SRI, socially responsible funds have become more accessible to interested investors. Fund managers all over the country have assembled socially responsible ETFs and funds that investors can select from that support their values without the need to conduct detailed analysis into the fund’s composition.

If you’re interested in exploring SRI further, First Western Trust Bank can help. We’ll take a holistic approach to your wealth, examining your goals and priorities to build a tailored financial solution to meet your specific needs. Get in touch with First Western Trust Bank today!

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