What is Socially Responsible Investing?

As a consumer, you vote every time you buy something.

By buying this over that, you’re effectively saying, “I support this company and not that company.” A single dollar has little power, but when you are spending thousands of dollars in a year and millions of others are spending thousands of dollars in a year, consumers can cause companies to thrive or die.

Have you ever found yourself saying, “I’d never buy clothes from that store; all of their stuff is made in low-wage sweatshops.” Or maybe, “I would never shop at that store because they don’t treat their employees well.”

Many people have strong feelings about the products they buy and the companies they support or don’t support.

And just like there are consumers who don’t want to buy things from certain stores they feel negatively about, there are investors who don’t want to buy stock from companies they feel negatively about.

This is called socially responsible investing

Sometimes its also known as socially conscious or ethical investing. All are phrases for the same thing – investing in companies with the hope of making money but also doing social good. Or, on the flipside, not investing in companies who do social bad.

For example, I had a client who lost her husband to lung cancer. She was adamant she didn’t want to invest any of her money in tobacco companies. She said she didn’t want “blood money.”

Another client, upset about the aftermath of the big BP oil spill in the Gulf of Mexico, didn’t want anything to do with oil companies.

Another client, who is a pacifist and despises all things related to war and conflict, made it clear he didn’t want any ownership of big defense companies who make planes, bombs, and tanks.

And still another client, this one a vegetarian, inherited a considerable number of shares of . . . guess what company? McDonald’s! We couldn’t sell these shares fast enough for her.

The goal with socially responsible investing is to do well by doing well; to make money and at the same time feel good about the companies you own.

For some investors, avoiding certain companies is important. They don’t want to feel like they own something that goes against what they believe. For them, socially responsible investing is a way for them to be an investor, yet also stay aligned with their values.

What do the critics think?

Critics of socially responsible investing will argue that as an investor, your goal should be to make the most money possible, and if that includes investing in some questionable companies, then that’s what it takes. They’ll also argue that many of the industries that are the most hated by socially responsible investors, industries such as oil, alcohol, tobacco, and defense, are also some of the most profitable and best performing areas in the stock market.

But socially responsible investors will say that as the public learns more about these
industries, they will make better choices and that the companies which do well will also make more money as the public starts to vote with their consumer dollars.

The proceeding blog post is an excerpt from Get Money Smart: Simple Lessons to Kickstart Your Financial Confidence & Grow Your Wealth, available now on Amazon.