More than $17 trillion are currently invested in socially responsible assets.1 And there is an ever-growing universe of so-called sustainable funds. Still, if you aren’t sure what socially responsible investing (SRI) is, you’re not alone. If you’re intrigued by the idea of investing in companies that support your values, this could be an option for you. We’ll answer the question, “What is SRI investing?” Then we’ll share tips for evaluating funds from an SRI perspective and applying these principles to your portfolio.
What is socially responsible investing (SRI)?
SRI often stands for socially responsible investing, but there is no industry-wide definition. The acronym can also stand for sustainable, responsible and impact investing, social impact investing or sustainable investing. By any name, SRI is an investment approach that lets you align your portfolio with your values.
This may include divesting your assets from companies and funds that don’t align with your values. And it may include investing in assets that support your beliefs. For example, you may want to remove your money from tobacco producers or invest it in companies that pursue energy-efficient aims. The key point is that SRI investing is based on your personal viewpoint. And, like any type of investing, SRI also aims to generate financial returns for the investor.
What is ESG investing?
Environment, social, and governance (ESG) investing is another broad term for an investing approach. It tends to focus on how company practices support ESG principles, especially those that are trending in the news. For instance, an ESG investor might consider a company’s record on air pollution, employee health and safety, and executive diversity. In addition, ESG considers the risk a company faces due to their practices.
What are values-based, faith-based, impact and mission-driven investing?
Like SRI and ESG, values-based investing is an overarching term for an investment approach that considers your personal values along with financial returns. There are several sub-categories of investing that fall under these umbrellas. Each lets you put a different lens over your investment choices to align with specific values, views or objectives.
For example, faith-based investing may support your religious beliefs. Social impact investing aims to make a direct improvement or change, such as building schools or assisting underserved communities. And mission-driven investing supports the mission of an individual organization or group.
How do you evaluate investments based on SRI?
If you’re interested in SRI, start by making a list of the values you want to align with. Also list industries, values or activities you don’t want to support. With these lists, you can review potential mutual funds, ETFs, stocks and bonds to determine whether they meet your interests. To do this, you can look up annual reports and sustainability reports.
Learn about Hancock Whitney’s ESG commitment here.
You can also use tools such as Morningstar, which has its own sustainability rating system for investments.
Applying SRI to a portfolio can be a highly customizable process. For instance, someone may choose to have more of their allocation go to funds with high SRI ratings. Or they can get more granular, aligning with more specific points, such as energy-efficiency.
Part of your SRI evaluation should be assessing its impact on portfolio performance. For example, someone who divests from a high-performing stock that doesn’t fit their beliefs may see lower performance than if they kept the stock.
How do you apply SRI principles to an investment portfolio?
Diversification should still be a priority when applying SRI investing principles. That shouldn’t be difficult. SRI opportunities are now available across all market sectors, as well as in different asset types. Investors who don’t want to move their full portfolio to SRI also have options. They may choose to put only a portion of their portfolio into SRI assets. Or they may start small and gradually shift larger amounts of their portfolio to an SRI strategy.
At the end of the day, SRI investing allows people to consciously invest and create a portfolio that lets them feel good about what they’re invested in. And that’s wonderful!
To learn more about SRI and explore how it might fit into your financial plan, talk with the professionals at Hancock Whitney.
1“The US SIF Foundation’s Biennial ‘Trends Report’ Finds That Sustainable Investing Assets Reach $17.1 Trillion,” U.S. Forum for Sustainable and Responsible Investment, posted Nov. 16, 2020, https://www.ussif.org/blog_home.asp?Display=155, accessed March 3, 2023
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