Socially Responsible Investing: What It Is and How It Works
Socially responsible investing—often referred to as sustainable investing—means making investment decisions with regard to factors over and above financial returns.
In turn, sustainable investing is often referred to as ESG investing, with the initials standing for environmental, social and governance.
Recent surveys indicate that a strong majority of investors have an interest in sustainable investing. At Thorley Wealth Management, we have embraced socially responsible investing and encourage our clients to seriously consider it.
Socially responsible investors often seek to align their portfolios with companies or funds whose missions or corporate policies and practices are favorable to the environment. On the flip side, investors may want to screen out companies or funds that they may find socially unacceptable, anything from poor environmental practices to human rights abuses.
Now, some may believe that eliminating some companies from one’s investment options based on social issues also limits the potential for financial returns.
However, some statistics suggest otherwise. Some studies have found no validity in the notion that socially responsible investing has a negative impact on one’s potential financial success.
In fact, some studies indicate that selecting companies with admirable practices and policies on social issues may actually increase the likelihood of good financial returns. For example, a company’s initiatives to reduce waste, improve energy efficiency or conserve natural resources that flow to a company’s bottom line. And, companies with strong governance may potentially avoid costly workforce problems, negative publicity and regulatory sanctions. These practices can increase shareholder value.
Building a socially responsible portfolio seems to have wide appeal. At Thorley Wealth Management, we are ready to help clients make it happen.
Investments are subject to risk, including the loss of principal. An investment's socially responsible focus may subject it to social criteria risk, which involves the exclusion of certain securities for non-financial reasons. This may result in the investor forgoing some market opportunities that may have been available to those not subject to these criteria. There is no guarantee that any investment goal will be met.