Socially Responsible Investing (SRI): The Basics

Some people see investing as more than a rate of return but as a way where one’s values and beliefs are reflected and practiced. Socially responsible investing or SRI is a growing strategy that integrates financial with social and environmental objectives. Those who are considering investing in SRI need to know ten basic tips.

1. Define goals: Determine what you want to achieve based on your values and principles.
2. Choose an approach: SRI has three non-mutually exclusive approaches: 1) Portfolio screening either excludes (negative screening) or includes (positive screening) some companies from your list of prospective investments; 2) Best practices classification chooses firms that rank high in environmental, governance, social, or financial criteria; 3) Shareholder status usage to monitor and influence management through direct engagement of proxy voting.
3. Select an Appropriate Benchmark: Use either SRI or traditional benchmarks to evaluate a business’ performance according to whether they adhere to your defined goals and principles.
4. Choose an SRI Rating Firm: Select the best firm that can supply SRI ratings that help you implement a feasible SRI strategy.
5. Investigate SRI Vehicles: Pick individual securities that rank high based on realistic criteria and expectations.
6. Evaluate SRI Options in Your 401(k) Plan: Check your 401(k) plan to evaluate whether mutual funds screened are consistent with your goals and values.
7. Fees: Bear in mind that socially responsible mutual funds or ETFs pay higher management fees, ranging from about 0.40-1.00% of portfolio value.
8. Be realistic in performance expectations: Like other investment vehicles, be realistic in the performance of your investments. While possessing similarities, realize that an SRI does not perform like your traditional mutual funds.
9. Diversify: Come up with a well-diversified portfolio to reduce risk.
10. Consult an Investment Professional: It is important to consult with a competent and trust investment adviser to help you navigate and execute SRI goals.