Since the 2000s, socially responsible investing has exploded in popularity. Today, it’s not just niche funds operated by mission-driven managers getting in on the action — it’s top-rated regional banks and global finance powerhouses, too.
Despite its burgeoning popularity and the indisputable fact that — despite the misgivings of old-school investors — socially responsible investing is not a flash in the pan, many retail investors aren’t sure whether SRI (as it’s known) is right for them.
That’s understandable. For all the hype around it, SRI is pretty low-key.
But don’t let that stop you from taking a crash course in the ins and outs of SRI. You owe it to yourself to know what you’re getting into, after all.
- It’s Not Just About Saving the Planet
First things first: The common misconception that SRI is all about sustainability and environmental remediation is just that — a misconception. Sure, plenty of SRI funds are partly or wholly given over to first-rate environmental stewards, but that’s not the whole story. Some SRI funds focus more on fair trade or labor practices, for instance; others make human health and wellness central to their investing thesis. Knowing what is impact investing and gaining a deeper understanding about it will make you realize that it is not just about providing a positive approach on environmental issues but also goes beyond the social and global scale.
- “Values” Are in the Eye of the Beholder
SRI is often conflated with “values investing,” but the two aren’t really synonymous. Even if you dispel with the semantics and accept that SRI is by definition values-driven, it’s important to understand that “values” are usually in the eye of the beholder. SRI funds devoted to faith-driven firms, for instance, may come off as distinctly amoral to secular investors — and vice versa.
- SRI Funds Perform Surprisingly Well
Let’s dispel with another common misconception: that SRI funds underperform traditional, non-SRI funds.
Though it’s still early days, evidence is emerging that top-shelf SRI funds hold their own against non-SRI funds. Individual fund performance will always vary, and throwing good money after bad is never a good idea, but investors reticent to invest in socially responsible funds would to well to keep some perspective.
- SRI Is a Big, Big Business
SRI is a cash cow. In 2014, more than 15% of assets under professional management were held in SRI funds, and the share has only grown since. SRI is no longer the province of the day-trading uncle; today’s socially responsible investors are masters of the universe, too.
- It’s Not Just Stocks
Socially responsible bonds? Believe it. Do-gooder companies need low-interest financing too. If you’re looking to diversify your portfolio without adding undue risk, don’t assume you have to go with the same old batch of amoral blue chip bonds.
- It’s Here to Stay
If the past decade has proven one thing, it’s that socially responsible investing is not a flash in the pan. That’s great news for buy-and-hold investors who aren’t particularly interested in chasing returns or switching funds every year for the fun of it. More importantly, it’s great news for the planet and its inhabitants.
Become an Enlightened Investor
This last point bears repeating: Socially responsible investing is not going anywhere. If you’ve been on the fence about buying into your first socially responsible fund, sit down with your financial advisor for a frank discussion of the pros and cons. The former could prove more persuasive than you expected.