If you want to put your dollars into causes you care about, one of the easiest ways to get started is through socially responsible investing. The strategy prioritizes financial return with the caveat that the money is invested to fuel positive change in three key areas: environmental, social and corporate governance (ESG). Perhaps you’re looking to help reduce pollution, address gun violence, promote animal welfare or advocate for employee rights.
Whatever your cause, socially responsible investing allows you to earn a return while making an impact.
What is socially responsible investing (SRI)?
Socially responsible investing is an investment approach that considers the social impact and moral values of an investment as well as the expected financial return. The impact of the investment is considered before the potential profit. An investor who focuses on the social impact of their investments will likely consider ESG factors as they’re evaluating potential investment opportunities.
For example, these investors typically avoid investments in fossil fuels or in the tobacco and firearms industries because of their negative impact on consumers and society.
According to the US SIF Foundation’s Report on U.S. Sustainable and Impact Investing Trends 2020, the three letters of ESG have been attracting some big numbers. Total assets in sustainable investments grew from $12.0 trillion at the start of 2018 to $17.1 trillion at the start of 2020. Keep in mind that those figures were at the very beginning of 2020 – before the challenges of the pandemic forced many investors to think carefully about where their money is going.
“In 2020, the COVID-19 health and economic crises and murder of George Floyd and other Black people in America highlighted the urgent need to confront social and economic inequality and calls for racial justice,” says Farzana Hoque, a research consultant at US SIF, The Forum for Sustainable and Responsible Investment.
The growth of socially responsible investing
The focus on socially responsible investing has been steadily increasing for several years and the pandemic only fueled it further. Assets are expected to rise to $50 trillion by 2025 from about $35 trillion in 2021, according to Bloomberg Intelligence.
Money invested in sustainable mutual funds and ESG-focused ETFs rose 53% in 2021 and sat at $2.47 trillion globally at the end of June 2022, according to Morningstar. The funds added net new assets of nearly $33 billion during the second quarter of 2022 and Europe accounted for 82% of the funds’ total assets. However, the U.S. lost $1.6 billion in sustainable fund assets during the second quarter, the first outflow in over five years.