Ten Steps to Socially Responsible Investing
Saturday, 08 March 2014 00:00  |  Written by Guest Contributor | Blog Entry

Ten Dollar Bill photo by Derek & KristiYou want to meet your financial goals, but want to do so without harming others, and in a manner that promotes the public good. This is a loose definition of socially responsible investing (SRI).

If you are opposed to pollution, war and worker exploitation, you wouldn't want to buy stock in a company that profits from one or more of these. If you think the use of fossil fuels causes global warming, you might choose to invest in the alternative energy sector, for example. It's not difficult to put your money where your beliefs are. Here are ten easy steps to get you on the road to to socially responsible investing.

1. Focus on your personal vision of socially responsible investing - SRI is a broad term that will have different meanings for different people. For some, it might mean investing in environmentally friendly technologies. For others it might mean a company with good labor practices. Yet others might be companies that are community oriented or active in charitable causes. Or it might be combination of these factors. All are items worthy of consideration. Since it is your money being invested, your values should define what socially responsible means.

2. Consider how you wish to invest - Remember, this is an investment designed to meet your financial goals. Your plan should adhere to your investment practices. If you feel comfortable purchasing stock in individual companies, you can research and select such companies. If you are more comfortable diversifying your portfolio and investing strictly in mutual funds, there are SRI funds that will meet your desires.

3. Remember that it is a financial investment and should be treated as such - The research you perform on whether a company is socially responsible is in addition to—not a substitute for—the normal financial research you perform when selecting stocks or mutual funds. Earnings, market share, income and loss, company debt and other benchmarks you routinely use should be applied to the socially responsible companies or funds you have targeted. Do not invest in any company or fund with which you do not feel comfortable from a financial standpoint.

4. Look to the index - MSCI (formerly KLD Research & Analytics, Inc.) specializes in research on SRI companies and funds, and has maintained the MSCI KLD Social Index 400 (pdf) for the past 20 years to keep track of SRI companies and funds. This was formerly called the Domini Index. When comparing the Social Index with others, it matches up rather favorably over the past two decades.

5. Prepare for higher fees in some cases - Remember that additional research must go into SRI, since not only financial, but social and environmental factors must be considered. One such area of research should be fees. Though higher, fees for SRI funds aren’t prohibitive; with the right fund, you can still make money.

6. Do your research - There is help available, just like for any investment product. The Forum for Sustainable and Responsible Investment (US SIF) is a group made up of financial professionals with a focus on SRI. Though geared toward professional investors, the site does provide a section for individual investors, with a good FAQ section and research tools. SocialFunds.com provides an individual company lookup tool as well as a free mutual fund guide in PDF format via email. The Interfaith Center on Corporate Responsibility is a group of several hundred institutional investors with a focus on SRI.

7. Research outside the box if necessary - There is no need to simply rely on the research of other organizations, if they don’t offer the comfort level you desire. For instance, if you wish to invest in a company with a strong history of environmental safety, you can check with the Environmental Protection Agency to determine your target company’s environmental history.

8. Speak with your financial planner - Once armed with a sufficient amount of due diligence, meet with your financial planner if you have one. Most likely, they will be familiar with some type of SRI. Don’t be too concerned if they steer you away from a certain company or fund due to performance or risk factors, but you might consider another financial planner if they suggest you avoid any type of SRI product.

9. Keep track of your investments - As with any other investment, it is a good idea to keep track of it, and follow your normal practices for investing, reinvesting, buying, selling et al. This applies not only to the financial success of the investment product, but also its social responsibility aspect. Make sure the investment is meeting your social responsibility—as well as financial—goals over time.

10. Become involved - Expect the same level of social responsibility from yourself that you do from your investments. A large part of socially responsible causes is the sweat equity performed by those who place a high priority on certain values. Volunteer, perform research or otherwise become involved with a group that supports your definition of social responsibility. There is nothing wrong with changing the world with more than money, one volunteer at a time.

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The above piece was written by guest contributor Louise Baker. When she's not worrying about her portfolio or saving the environment, she writes about online schools for Zen College Life.

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