Socially Responsible Investing
Whether you're talking about ethical, socially responsible, or sustainable investing, it all comes down to the same principles. Here are the four main approaches:
1) Negative screening, or as I call it 'Doing Less Evil'. Pioneered by religious communities, this approach started by omitting so-called 'sin stocks' including weapons and pornography. Now it has grown to sometimes include fossil fuels and human rights issues.
2) Positive screening, or investing in sustainability leaders. Companies are scored based on dozens of environmental, social, and governance (ESG) indicators. This approach selects only the companies that are leaders in their sectors. Additionally, I lump in green sectors here if investors want exposure to things like solar, green technologies, and organic food.
3) Shareholder engagement is the practice of pushing companies in a more sustainable direction. Funds use 'proxy voting guidelines' to automatically vote your shares for initiatives that push companies forward on issues like disclosure of CO2 emissions and 'say on pay' for executive compensation.
4) Impact investments, or as I call it 'Doing More Good' are direct investments in companies and organizations that generate a positive social and/or environmental impact while also paying a financial return on investment.
Investors can use one or all of these approaches when it comes to building a custom portfolio. There is no need to sacrifice financial returns, and you'll feel much better knowing that your investments are aligned with your values.