At times, people tend to believe they need to use some unscrupulous means to generate gains in their investment portfolio. For them, doing good while investing will do nothing. That is not the case. Thanks to socially responsible investing (SRI)! Investors can profit while employing an ethical investment strategy. How?

Let us define socially responsible investing strategy. This investing technique pertains to achieving a successful investment returns while conforming to responsible corporate behavior. This is done by combining strict investment standards and social criteria so investors can determine securities with competitive returns and help build a better world. This type of investing promotes adherence to the positive aspects when it comes to publicly held companies.

Speaking of positive aspects, socially responsible investors focus on the following areas: corporate governance and ethics, community relations, environmental concerns, human rights, indigenous peoples’ rights, product safety and impact, and workplace practices.

But SRI garners a lot of attention for companies and industries that opposes as bad for the society. It includes businesses in alcohol, gambling, tobacco, and weapons, among others. Such businesses are categorized as sinful investments that are frequently removed through SRI screening.

Socially Responsible Mutual Funds

These are funds that hold securities in firms, adhering to social, moral, religious, or environmental benefits. Companies undergo a meticulous screening process to ensure the stocks’ values coincide with the fund’s principles. A socially responsible mutual fund only has securities in firms with high standards of good corporate citizenship.

Since individuals have differing values and beliefs, fund managers are somewhat challenged in finding out stocks that reflect the optimal combination of values for attracting investors. The specific qualifications for choosing stocks depend on the values and goals of the said fund.

Many socially responsible mutual funds will also allocate part of their portfolios for community investments. Many believe such investments are donations. That is not the case. Actually, these investments allow investors to help a community while making a return on their investment. Several community investments are put toward community development banks in developing nations or in lower-income areas in the United States for affordable housing and venture capital.

Is Ownership Taken Seriously?

Yes, ownership is a huge game changer.

Shareholder activism is one of the most significant issues for SRI funds. The funds use their ownership rights to affect management by suggesting policy change. The advocacy is attained through attending shareholder meetings, exercising voting, submitting proposals, and writing letters to management.

Voting is attained by proxy since fund shareholders find it difficult to exercise their votes. These shareholders designate management to vote on their behalf. Most of these funds implement a rigid policy to maintain transparency in their decisions, and disclose all proxy voting policies and procedures to their shareholders.

Price of Doing Good

An investor cannot be completely philanthropic and expect nothing in return for his investment other than that feeling of investing in a firm that shows one’s principles. Although its performance has been close to a regular mutual funds, these mutual funds charge higher fees than regular ones. These costly fees can be accounted to the additional ethical research mutual fund managers have to take. Also, socially responsible funds are regulated by smaller mutual fund firms and the assets under their management are small. Nevertheless, this is an investment that won’t make you compromise your values in the name of money. Going back to the question earlier, can investors profit while using an ethical investment strategy? Yes, as long as they treat it like any other investment. That way, you money is being put to good use and supports both your values and pocketbook.