Investing with Purpose: The Power of Socially Responsible Investing

Table of Contents
- Understanding Socially Responsible Investing
- The Benefits of Socially Responsible Investing

Understanding Socially Responsible Investing

Imagine you have some money saved up, and you want to invest it in companies that not only make a profit but also make a positive impact on society and the environment. This is where the concept of Socially Responsible Investing (SRI) comes into play. SRI is an investment strategy that considers both financial return and social/environmental good to bring about positive change in the world.

What is Socially Responsible Investing?

When you invest in socially responsible companies, you are supporting businesses that prioritize ethical practices, sustainability, diversity, and community involvement. These companies strive to make a difference beyond just making money, aligning their values with those of socially conscious investors.

For example, let's look at a Canadian company like Tim Hortons. They have initiatives to reduce waste, support local farmers, and provide scholarships to students. By investing in Tim Hortons, you are not only potentially earning a return on your investment but also supporting these positive actions.

The Rise of Socially Responsible Investing

Over the years, the popularity of SRI has been on the rise. In Canada, the total assets under management in responsible investment strategies reached $3.2 trillion in 2020, representing 62% of total assets under management in the country. This shows that more and more investors are recognizing the importance of investing with purpose.

In the United States, the trend is similar. According to the US SIF Foundation's 2020 Report on US Sustainable and Impact Investing Trends, sustainable, responsible, and impact investing assets now account for $17.1 trillion, or 33% of the $51.4 trillion in total US assets under professional management.

This shift towards socially responsible investing is driven by a growing awareness of social and environmental issues, as well as a desire to make a positive impact through financial decisions. Investors are increasingly looking beyond just financial returns and considering the broader implications of their investments.

The Benefits of Socially Responsible Investing

Investing with purpose not only allows you to align your values with your financial goals but also offers a range of benefits that go beyond just making money.

Positive Impact

One of the key benefits of socially responsible investing is the ability to make a positive impact on society and the environment. By supporting companies that are committed to ethical practices and sustainability, you are contributing to a more sustainable and equitable world.

For example, investing in companies that prioritize renewable energy can help reduce carbon emissions and combat climate change. Similarly, investing in businesses that promote diversity and inclusion can contribute to a more inclusive society.

Financial Performance

Contrary to popular belief, investing in socially responsible companies does not mean sacrificing financial returns. In fact, numerous studies have shown that companies with strong environmental, social, and governance (ESG) practices tend to outperform their peers over the long term.

According to a study by the Morgan Stanley Institute for Sustainable Investing, sustainable equity funds outperformed traditional equity funds in 2020. This demonstrates that investing in companies with a focus on sustainability can be financially rewarding as well.

Risk Management

Another benefit of socially responsible investing is the potential for better risk management. Companies that prioritize ESG factors are often better equipped to navigate environmental and social challenges, reducing the risk of negative impacts on their financial performance.

For example, companies with strong governance practices are less likely to face scandals or legal issues that could harm their reputation and stock value. By investing in these companies, you are potentially reducing your exposure to such risks.

Overall, socially responsible investing offers a way to make a positive impact on the world while also potentially earning competitive returns and managing risks effectively. It is a win-win strategy that aligns financial goals with social and environmental values.

I'll end by saying this: I'm doing my best to explain and simplify these concepts. But know that these short articles are just the beginning, and I want you to keep reading, learning and experimenting. To help you, here are a few books on investing, to prepare you for a deeper dive into the world of wealth creation: