Socially responsible investing. How to invest with a clear conscience.
Tuesday, February 09, 2021
Socially responsible investing is a trend that has been growing in recent years. Many people believe that they can make a difference with their investment dollars by choosing the right companies. What are your investment values?
In April 2006 at the New York Stock Exchange, the United Nations launched the six Principles of Responsible Investment. These principles were developed based on the notion that environmental, social and governance issues like climate change and human rights can impact the performance of investment portfolios.
Socially responsible investing is a trend that has been growing in recent years. Many people believe that they can make a difference with their investment dollars by choosing the right companies. It’s important to recognise, it’s still an investment and brings a need to weigh the potential for return on any decisions made. Essentially, it’s a way to make money while feeling good about it. Read on to discover precisely what socially responsible investing is, why you might benefit from it, and the different values you might explore.
What is socially responsible investing?
Socially responsible investing integrates environmental, social and governance factors (ESG) when it comes to the evaluation of investments. It’s quite a broad definition that looks at ethical factors on the whole, which can vary significantly between businesses.
For example, you may choose to invest in one business over another, based on their ethical practices. One company, in particular, has adopted solar panels to power their factories, placing them in line with your values. As a result, you weigh them ahead of another business burning through fossil fuels. You can also eschew investments that go against your values, such as avoiding companies that sell tobacco products.
This style of investing is for those who care where their money is going.
Essentially there are two approaches you can take when it comes to socially responsible investing: choosing companies who you feel have ethical operations that are in line with your values; and then avoiding companies who you don’t think are ethical at all and don’t follow the same values.
There are two inherent goals of socially responsible investing: social impact and financial gain. The social or environmental value needs to be considered along with financial performance. It brings with it both personal and ‘bigger picture’ benefits such as:
- Investments are made in line with personal beliefs and values.
- Healthy financial gains are returned.
- Facilitates social change as businesses alter how they operate to attract your investment.
Six principles for responsible investment
The six principles of investing are based on the notion that environmental, social and governance (ESG) issues can affect the performance of investment portfolios. They were developed following consultation with an investor group of 20 people from institutions in 12 countries supported by a group of 70 experts from the investment industry, intergovernmental organisations and civil society. The six principles provide a global framework for investors to consider when making investment decisions.
The six principles are:
- Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.
- Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.
- Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.
- Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.
- Principle 5: We will work together to enhance our effectiveness in implementing the Principles.
- Principle 6: We will each report on our activities and progress towards implementing the Principles.
How to define your investment values
Before you even begin to explore socially responsible investments, it’s essential to define what your values are. You must have a clear understanding of what’s important to you when it comes to important topics, such as climate change, human rights, fair workplace, product safety standards.
This includes taking a look at:
- Corporate governance and business ethics.
- Environmental track records and sustainability.
- Safety of manufactured products.
- International human rights.
It’s worth noting that socially responsible investments have a habit of mimicking the social and political environment at the time of investing. If these values change and fall out of favour, the investment could suffer as a result.
This is why (ESG) plays such an important factor—looking at the environmental, social and governance for investing focuses on a company’s management practices and whether they lean towards sustainability and a community-minded approach. Rather than focusing on particular social values, it’s about exploring the overall running of a business and way they operate to determine if values align in general.
This ensures a long-term investment opportunity that continues to align with your values through changing times.
How can IMFG help you with socially responsible investing?
At IMFG, a key part of developing an investment strategy for our clients is to understand their investment values. We want our clients to be comfortable that their investment portfolios and their values align – and we take the time to ensure that they do.
If you’d like to review your current investments or discuss how we can help with socially responsible investing, contact our team on 02 9002 0570 or email firstname.lastname@example.org
Author: Angus Dockrill
Angus is a Director and Wealth Specialist at IMFG. Angus helps people to improve their quality of life and peace of mind by making smarter financial decisions.
Disclaimer: The information on this website is for general information only. It should not be taken as constituting financial advice from IMFG and should not be construed or relied on as such. Before making any commitment of a financial nature you should seek advice from a qualified financial or investment advisor.