A socially responsible fund, for instance, may avoid investing in specific areas, such as tobacco or firearms. Pros. This might mean the company is more aggressive in creating ethical changes with the products and services. If you pass on this attractive investment opportunity because of the social responsibility factor, you may lose out. Heâs also built and run a digital marketing agency, focusing on content marketing, copywriting, and SEO, since 2016. It’s always smart to focus on performance, but if you’re doing your research appropriately, you should rest easy knowing that you’re investing in a higher cause. Glassman Wealth Services is a wealth management firm headquartered in Northern Virginia. Marketwatch columnist Vitaly Katsenelson also wrote an in-depth opinion piece on why socially responsible investing can be a money pit. The Cons of Socially Responsible Investing SRI isn’t all sunshine, rainbows, and solar panels. Chris has an MBA with a focus in advanced investments and has been writing about all things personal finance since 2015. What defines a socially-responsible company is ambiguous and subjective. Finally, there are faith-based funds, which only invest in stocks that follow Christian, Catholic, or Islamic values. 3 Beauty Brands Tackling a Packaging Problem, Data Availability Drives ESG Investing Surge, Social Responsibility: The Importance for Businesses, Protest Divestment and the End of Apartheid, UN Principles for Responsible Investment (PRI) Definition, The Value in Socially Responsible Investing, Socially Responsible Investment (SRI) Definition, Impact Investing: Making A Difference And A Profit, The 5 Countries That Produce the Most Carbon Dioxide (CO2), Impact Investing vs. Venture Philanthropy, Socially Responsible Investing Vs. Putting a marketing spin on anything for sale is part of a modern business culture. Some of my favorite robo advisors have socially responsible investing tracks, including Personal Capital, which focuses on ESG (Environmental, Social and Governance) metrics, and Betterment, which also offers SRI alternatives for large cap U.S. stocks and emerging market stocks. What are the Different Types of SRI Funds? In addition to being good stewards of the environment, these “socially responsible” businesses are expected to treat their employees well, create healthy products and services, and steer clear of unethical or predatory business practices. Target-Date Funds - Is Yours Too Risky For You? Everything You Ever Wanted to Know About Car Insurance, A Homeowner’s Guide to Homeowner’s Insurance, Tax Benefits for Buying and Owning a Home, Turbotax vs. TaxSlayer vs. Credit Karma Comparison. Those higher fees can have a material drag on performance. You may instead invest in companies that focus on delivering local, organic produce at an affordable price. Barry Glassman meets with Julie Cooling of the RIA Channel. You can see how this can cause both outward and inner-controversy when selecting a fund or individual stock. It may seem like it’s being done on a small scale, but socially responsible investing punishes companies that act unethically, and it also rewards companies that are doing the right thing. With news of shady and illegal investment deals becoming common, many active investors have begun to insist that the companies they invest in make socially responsible choices. As I stated above, Microsoft was excluded from one of the most significant SRI funds because of the way it operates its business–not because they’re dumping toxic chemicals into the water. Building off of the point above, if you focus solely on socially responsible stocks and funds, you could be leaving strong investments on the table. Let's take a look at the pros and cons. What are key points to a good corporate social responsibility policy? The definition is a broad one, as “ethical practices” vary widely based on who is evaluating them. There’s a big difference here. Portfolio managers tend to charge higher fees to compensate for their need to constantly monitor companies’ activities to ensure the standards of the fund are being upheld. Having this kind of approach, and sticking to your core values, will allow you to focus on other aspects of your financial life, such as automatic payroll savings, college savings, and purchasing a home. Based on the performance of the funds listed above, socially responsible investing seems like a reasonable proposition. Archives: You can explore the site through our archives dating back to 2007. As another example, the FTSE KLD 400 Social Index has Coca-Cola as a top holding. When socially responsible investing becomes the primary objective, the financial side of the equation will likely suffer–at least part of the time. In the past, it would have been necessary to manage your own portfolio of carefully selected, individual securities to accomplish this. For a long time, they put a hefty amount of marketing into their “clean diesel” cars–marketing them as safer for the environment. It’s easy to complain about awkward situations, but infinitely harder to do anything about it. In the end, it may come down to a matter of conscience. Socially responsible investments can be one of the most challenging and frustrating portfolios to maintain, especially in a bear market. The limitations of ethical investing provide you with some assurance that you don’t have to check in on your investments continually. If your values are important to you, then socially responsible investing allows you to put your money where your mouth is, so to say. Where socially responsible investing funds tend to focus on excluding industries that don’t use ethical practices or products, ERG funds concentrate on including ones that do. References to products, offers, and rates from third party sites often change. According to The Forum for Sustainable and Responsible Investment, there are over 456 mutual funds in the environmental, social, and governance (ESG) investing space. The Pros of Corporate Social Responsibility A proper corporate social responsibility plan can provide businesses and enterprises with a tremendous amount of value and extra profitability that they simply didn’t enjoy it in the past. Because a fund excludes a company that produces a product like tobacco, it doesn’t mean there aren’t some unethical practices in the companies that are included in the fund–it tows the line in some cases. Some investors just don’t want pornography in their portfolios. Socially responsible investing is an investment strategy that has been gaining traction in recent years. A perfect example of this is Lego, who ended their partnership with Shell Oil a few years ago and is now partnering with companies like the World Wildlife Foundation on social initiatives. Before considering making a socially responsible investment you should understand […] The first, and most traditional funds are known merely as socially responsible investing funds, and they avoid companies that play in significant areas of controversy such as gambling, firearms, tobacco, alcohol, and even oil. Many individuals have begun considering this strategy. Opinions expressed here are author's alone, not those of the bank, credit card issuer, or other advertiser, and have not been reviewed, approved or otherwise endorsed by the advertiser. Choosing investments that offer environmental or social benefits has a number of benefits, including: It is becoming a widely-adopted form of financial management. So ERG funds focus on companies that do function in entirely ethical ways. as one study shows that 66% of people around the globe are willing to pay more for sustainable goods. Social responsibility in marketing can drive consumers toward products and services, enhancing a company's brand as well as benefiting o... Why Is Social Responsibility Important in Marketing? Socially responsible investing, or SRI, is when you strategically invest in companies that have ethical practices. In many cases, it’s more important to craft the image of being socially responsible than to actually be socially responsible. This site may be compensated through the bank, credit card issuer, or other advertiser Affiliate Program Disclaimer: The content on this site is for informational and educational purposes only and should not be construed as professional financial advice. Ally Invest now has what they call Managed Portfolios–which is their version of a robo-advisor. This fund invests in companies that demonstrate a history of positive environmental, social, and sustainability practices. A socially responsible investor might want to put their money in a company that has adopted a way to bring clean water to third-world countries. It’s about building and thriving responsibly and sustainably. This is not because great, sustainable companies don’t exist globally, but because the information needed to screen companies on a global level may not be readily available. Should you need such advice, consult a licensed financial or tax advisor. Another con is that, although mutual fund fees have fallen in recent years, the fees for socially-conscious strategies are typically higher than passively-managed funds. Those are causes that couldn’t be funded unless individuals like you were investing in them. The converse of this is true as well. Let’s say you find a new company with below average performance regarding social responsibility, but a history of creating innovative products and services that improve lives and generate jobs. We are a fiduciary financial advisor providing completely objective, fee-only financial planning and investments that values relationships with our clients and their families over pie charts and reports so we can focus on our client’s goals and objectives. There seems to be an SRI vehicle out there for everyone, with some even observing specific religious affiliations. SRI may help you sleep better at night, knowing that you’re doing something to avoid investing in unethical causes. This lead to a scandal, which later began to unravel Volkswagen’s image of being an ethical company. Now, this is strictly a theory, but if you’re standing for a cause, it might motivate you. Benefits. With the right marketing campaign, people will believe nearly anything. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered. Investment News: What If You Had Just One Client? So for example, if you think tobacco is bad for the world, you may avoid investing in companies that produce tobacco products. Socially responsible investing is for those who have a personal connection to their investments, and want to invest their money in noble causes. Not only does it show that you’re aligned with the values of the companies you’ve invested in, but it also shows they’re profitably doing good. Avoiding tobacco companies is simple enough, but adhering to other SRI guidelines can get murky, fast. Is corporate social responsibility important to you? SRI may involve avoiding companies that sell potentially harmful or addictive goods such as alcohol, tobacco, guns, or pornography, or emphasizing businesses that focus on environmental concerns, clean energy, employee lifestyle, social justice, and more. The lesson here is that just because a company says its socially or ethically responsible, doesn’t mean it is. Barry Glassman Interviewed on Federal News Radio. PLEASE SEE IMPORTANT DISCLOSURE INFORMATION, 6 Most Important Points to Consider Before Rolling your 401k to an IRA, Year-end Financial Planning Tips: Moves You Need to Make Before December 31.