Ask An Advisor: Am I Invested in Ethical Companies?

  • By Jocelyn Black Hodes, DailyWorth's Resident Financial Advisor
  • June 03, 2013

Photo courtesy of Twamies

I’m interested in investing in the stock market, but hate the idea of supporting companies with unethical business practices. How do I know that my investments are helping to do more good than bad?

—Joanna, Philadelphia, PA

Sounds like you are interested in socially-responsible investing, or SRI. SRI is sometimes referred to as "sustainable," "green," "ethical" or "mission" investing. Many of us want to grow our money, but not at the expense of others, animals or the environment. This is a strategy to avoid investing in entities that may promote harmful products, exploit their employees or citizens, pollute the environment and/or violate human rights.

The history of SRI goes back centuries, but its mainstream popularity really began in the 1960’s with anti-war and civil rights activism. In recent decades the movement has gained tremendous momentum and today represents over $3 trillion in total managed assets, a clear indication that many investors like you are as concerned with the impact of their investing as with their personal financial gain.

SRI generally encompasses three focus areas:

  1. Investment in companies and governments believed to uphold certain values and make positive social, political and/or environmental change a priority, and divestment in entities that are believed to have a negative impact. The areas of concern are often referred to as “Environmental, Social and Governance” or ESG.
  2. Shareholder activism. SRI investors tend to be a passionate bunch and interested in doing their part to help create positive change. Shareholder activism aims to promote certain values and influence corporate and/or political decision-making that could have a detrimental impact. This is accomplished through a variety of methods, including conferences, broadcasting, protests, lobbying, publishing and social media.
  3. Community investing makes it possible for local organizations to provide financial services to low-income individuals and capital for small businesses and vital services like affordable housing, childcare and healthcare. This has become a rapidly growing aspect of SRI and involves directing capital from investors and lenders to communities, both local and global, that are underserved by traditional financial services institutions.

Keep reading for more on how to invest.

1 2