Socially Responsible Investing: What it is, why it’s important, and 4 companies making the process super simple
You’re likely familiar with the concept of “voting with your dollars”, but this applies to more than just buying things (which can fuel the false narrative that we can buy our way into sustainability).
Voting with your dollar can also mean watching where your investment money is going.
You may not realize it, but your retirement plan and other investments could be helping fuel climate change. The unfortunate reality is that many funds currently available have investments in fossil fuel companies.
If you’re not sure if your current mutual funds or ETFs include investments in fossil fuel company stocks, check out FossilFreeFunds.org. Their search function will reveal how much of your fund is invested in fossil fuel companies and will suggest cleaner fund alternatives.
Why make the switch? The benefits of moving to a more sustainable investment fund are clear.
Socially responsible investment funds and investment companies enable investors to put their money in funds that align with their social and environmental values.
The benefits are two-fold:
- You’ll be able to avoid investing in certain stocks, such as fossil fuel corporations, corporations involved in deforestation, corporations with outsized carbon emissions, and tobacco corporations.
- You can also choose to start investing in companies that uphold your values, such as renewable energy companies, corporations with ethical supply chains, and corporations promoting racial, gender, and LGBTQ equality.
I like to think about socially responsible investing as an opportunity to make a direct positive impact that could actually earn you money. Talk about a win-win-win.
And investors are starting to see the light. According to GoFossilFree.org, 1,224 institutions have divested a total of $14.48 TRILLION in assets and 58,000+ individuals have divested $5.2 billion in assets. The Fossil Fuel Divestment movement is only growing!
What socially responsible investment companies or platforms are there? There are a growing number of big banks, such as Morgan Stanley and BlackRock (though it’s important to note that BlackRock is also the world’s largest investor in coal, oil, and gas companies) offering responsible funds. However, for the sake of this article, I chose to feature smaller, up-and-coming companies with easy-to-use, accessible (low deposit minimums) online platforms.
How is an investment determined to be “socially responsible”? Generally speaking, socially responsible investments are investments in companies that consider the triple bottom line of people, planet, and profit. Different platforms use different methodologies, which I’ve included beneath each individual platform. One commonality you’ll see is the use of MSCI ESG (Environmental, Social and Governance) Ratings. MSCI’s ratings are determined using a methodology that takes thousands of data points into account across 37 different ESG areas.
If you’d rather stay with your employer’s 401(k) plan due to employer matching benefits, consider presenting a case to your employer on why they should divest from fossil fuels. Fossil Free Fund’s fossil-free action toolkit may also be useful.
(Note: I’m not promoting any platform over another, this is simply a researched list to help inform your decisions, and I’d recommend doing further research into whichever platform you decide.)
OpenInvest is a Public Benefit Corporation enabling investors to create a portfolio based on what they’d like to divest from or invest in. You can divest from carbon emissions pollution, corporations driving deforestation, fossil fuel producers, Big Tobacco, the prison industrial complex, gun violence, and the Dakota Access Pipeline. You can also invest in companies that support LGBTQIA+ employees, that support refugees, that have ethical supply chains, women leaders, that support racial justice, and that support heart health.
You’ll be prompted to answer questions about how much you’re able/willing to invest and how much risk tolerance you have, and OpenInvest will generate a portfolio example for you.
Fees: 0.5% annual fee of assets managed
Minimum Deposit: $100
2. Stash (some funds)
While not a fully socially responsible platform, I appreciate that Stash is dedicated to making investing as simple and accessible as possible — you can invest and sell directly from their app. This is a platform I’ve used for a few years, and I honestly can’t imagine the process being any easier.
The environmentally and socially responsible funds you can choose from on Stash are: “Clean & Green”, “Combat Carbon” and “Do the Right Thing”.
Fees: $1 per month for accounts with less than $5,000 | 0.25% annual fee for accounts with more than $5,000
Minimum Deposit: $5
Impact Methodology: Stash’s ETFs are BlackRock iShares ETFs. You can read more about BlackRock’s approach to sustainable investing here.
3. Wealthsimple (Socially Responsible Investing Option)
Wealthsimple is with low fees, low minimums, and a diversified portfolio. socially responsible investment portfolio. This portfolio includes stocks within these categories: “Low Carbon” (stocks with lower carbon exposure), “Gender Diversity”, “Cleantech”, “Local Initiatives”, “Socially Responsible”, and “Affordable Housing” (these are Government-issued securities promoting affordable housing)
Fees: 0.4% – 0.5%
Minimum Deposit: $1
Impact Methodology: Wealthsimple’s SRI (Socially Responsible Investing) portfolios are based on existing ETF’s
Ellevest is an investment company that’s owned co-founded by Sallie Krawcheck, the former CEO of Merrill Lynch Wealth Management and Smith Barney. The company’s online investment tool is designed with women for women that consider the differences in a woman’s salary curve and lifespan. Co-founder and CEO, Sallie Krawcheck, CEO of Merrill Lynch Wealth Management and Smith Barney
You’ll enter basic personal and financial information along with your goals and Ellevest will provide you with an estimated portfolio. You can then choose more specific information like the initial deposit amount, monthly deposit amount, timeline, and your risk tolerance. If you’d like to choose socially responsible investments, be sure to choose the “On” in the Impact Portfolio option as well.
Their areas of impact include: “Women in Leadership”, “Sustainable, Accountable Companies”, and “Thriving Communities”. Unfortunately, you can’t invest 100% of your money into these areas of impact — Ellevest’s Impact Portfolio invests just 9 – 55% into these areas.
Fees: 0.25% annual fee, prorated monthly
Minimum Deposit: None
Impact Methodology: Ellevest has three impact areas they look for:
- Women in Leadership: “These funds invest in companies with more women leaders and policies that advance women.”
- Sustainable, Accountable Companies: “These funds invest in companies working to meet higher standards for sustainability and ethical practices.”
- Thriving Communities: “These funds provide loans to support both women-owned businesses and companies that provide community services — child education, performing arts, and housing and care for seniors and individuals in need.”
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