What You Need To Know About Socially Responsible Investing

Making ethical and sustainable decisions can be more challenging than conscious consumers realize – for example, did you know that even Kraft Dinner is owned by tobacco producer Phillip Morris?

However, the world is a complicated place – and eating sustainably sourced mac n’ cheese isn’t going to change it.

While it can be disheartening to learn that many everyday objects prove to be the product of low-wage labour, unethical practices, or worse, a new focus on ethics has emerged among retailers and customers. Perhaps that’s why socially responsible investing has also seen a spike in popularity.

What Is Socially Responsible Investing?

These days, thanks to the all-seeing eye of the Internet, investors have the ability to put their money where their hearts and beliefs lie.

An estimated 20 per cent – more than $600 billion – of all assets under management in Canada are now invested in SRI funds, said Ian Bragg, associate director at the Toronto-based Social Investment Organization, to the Globe and Mail last March.

Looking to get started in SRI? Here’s our lowdown. Who knows – maybe you’re an ethical investor too.

The Streams of SRI

Ethical investing can be a very personal approach, but there are essentially two overarching merthods.

The first is to only own and invest in stocks that are “green and ethical”- that is they’re sustainably minded companies that pose no threat to the environment or their employees. While there’s plenty of wiggle-room for debate in this method, it’s a simplified way of looking at SRI.

The second type is investing to make an impact. Instead of focusing on your personal growth and profits, you invest in businesses, causes or certain classes of people to support their cause. This includes micro-lending programs like Kickstarter, Community Micro lending or Kiva.

Both styles of SRI have their benefits but it’s important you establish your goals as an investor first.

Even Good Causes Come With Risk

The socially investing world isn’t immune to the ebb and flow of the market.

Investing in clean tech that doesn’t make it past the prototyping phase is just as likely to cost you as investing in a large failing corporation. However, microlender Kiva has a near perfect repayment rate with most investors getting their money back.

Then there’s the challenge of determining the definition of an ethical company.

With the popularity of corporate social responsibility today, many companies have invested in marketing to promote their good practices. However, sometimes these claims are bunk. As an investor, it’s possible to end up investing in a business that doesn’t have the CSR attitude it claims to have.

The best way to get around this is to do your research and connect with SRI portfolio managers with a proven track record and evidence to back up the companies they choose to invest in.

Want To Get Started?

If you think ethical investing might be for you, here are a few links to help get you started.

The Community Foundations of Canada – provides links to help you screen for responsible investments.

Social Investment Organization – Trade association of the Canadian social investment industry and community.

Related Topics

Growing Your Money / Savings

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