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The Growth of Socially Responsible Investing

December 25, 2018 · 5 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

The Growth of Socially Responsible Investing

What if there was a way you could invest, while also using your money to help enact positive change? Welcome to socially responsible investing. It’s the practice of investing in stocks and bonds from companies that fit into these general categories or something similar:

Engaging in activities seen as positive, such as clean/alternative energy or technology

•  Participating in environmental sustainability efforts

•  Focusing on social justice

•  Not selling alcohol or tobacco or other addictive substances

Plus, there are mutual funds and exchange traded funds (ETFs) that only include companies that are socially responsible in their investment portfolios.

So if you’re interested in investing this way, you can make selections from individual companies that meet your threshold, or you can strategically select socially conscious mutual funds.

And if social responsibility in companies matters to you, then your goal will be to choose investment vehicles that meet your standards, while also complementing your financial goals.

The Evolution of Responsible Investing

Although socially responsible investing has become mainstream in 2018, it isn’t a new idea. The concept is often credited to John Wesley, founder of the Methodist church, who asked his followers to not invest in or partner with companies that could harm the community. This inspired many of them to avoid investing with anyone who earned income through alcohol, tobacco, gambling, or weapon sales.

In the 1960s, socially responsible investing grew . During that decade, some people chose to invest specifically in companies that supported the civil rights movement. Others, in opposition of the Vietnam War, would not invest in companies that created weapons.

In the 1970s, how companies handled labor/management issues influenced the way that some people invested. And this is when corporate pollution management played a role in investment choices. Plus, it was in 1970 that the first social responsibility issues first appeared on a proxy ballot of the federal Securities Exchange Commission.

In the 1980s, many investors pulled funds from companies that operated in South Africa because of racial inequalities associated with apartheid, while some mutual fund companies began making portfolio selections during this decade with an eye on social concerns. Interestingly, this echoed concerns of the Methodists from hundreds of years ago, avoiding alcohol, tobacco, weapon production, and gambling.

By the 1990s, interest in socially responsible investing was so strong that the Domini Social Index was created to measure social and environment performance by corporations. Four hundred companies in the United States were chosen and their financial performance was monitored, then compared to companies not included in the index.

This was the first formalized attempt to determine if investing in socially responsible companies meant lower returns—and the findings were that it did not. Today, as more people are becoming increasingly concerned about the climate, protecting the environment and so forth, these are some concerns currently influencing investment decisions.

Socially Responsible Investments: A Deeper Dive

In its earliest days, socially responsible investing was based on avoiding “sin stocks,” like tobacco or alcohol, based solely on moral and ethical principles, not financial wisdom. For a time, people thought that socially responsible investing meant that you’d need to accept reduced profits to maintain ethical principles.

But today, that isn’t true. Overall, ethical investing has become more about embracing the positive—a company’s track record with the environment, with their governance and more—than avoiding the negative.

Knowing how a company approaches its social practices, environmental considerations and treatment of employees allows investors to align their dollars with their values, something that is expected to become even more important as millennials become an increasingly bigger part of the investment pool.

In fact, a Nuveen study from December 2017 shows that 92% of Millennials surveyed said they would likely put their entire investing holdings into a responsible investing portfolio.

Here’s another factor: Women now possess 50% of the wealth in the United States, according to Investment News , and 80% of them favor socially responsible investing.

More about Ethical Investing

The US SIF Foundation is a non-profit organization that provides carefully-researched information about ethical investing, which is another term for socially responsible investing. Other names for this type of investment strategy include:

•  Community investing (this term typically refers more specifically to investing that will support underserved communities)

•  Green investing (this term usually refers to investing in environmentally-friendly options)

•  Impact investing

•  Mission-related investing

•  Responsible investing

•  Sustainable investing

•  Values-based investing

According to their 2016 Report on US Sustainable, Responsible and Impact Investing Trends, more than one out of every five investment dollars in the United States under professional management are now invested under the umbrella of sustainable, responsible and impact (SRI) investing. That is more than $8.72 trillion.

Additional information from the report indicates that sustainable investing has increased by 33% since 2014, and lists the leading environment and social issues of interest from 2014 to 2016. Here is that list in descending order:

•  Political spending/lobbying

•  Climate change

•  Human rights

•  Environmental issues (non-climate)

•  Sustainability reporting

•  Equal Employment Opportunity

Choosing Socially Responsible Investment Funds

If you’re committed to investing in these types of funds, the next question becomes how to choose the right socially responsible investment funds for your financial situation, values, and goals. And in the past, you’ve either needed to research funds and strategies yourself or have the funds managed, likely with high management fees involved.

Now, you have another option: Use SoFi Invest® and its combination of automated investing and professional guidance from experienced advisors.

SoFi as Your Ethical Investing Company

If you’re new to automated advising, it’s a software application that provides automated investment data. This data is gleaned through the use of an algorithm and provides in-depth investment intelligence, and the mathematical probabilities calculated are used to allow investors to make strategic decisions based upon current market conditions.

At SoFi, investors can benefit from this cutting-edge technology while also benefiting from human guidance. Note that, although many companies that use automated advising technology don’t allow investors to adjust risk tolerance when their financial goals change, SoFi does.

We believe that everyone should have access to quality investment management. You can start investing with as little as $1. And SoFi’s financial advisors aren’t paid on commission. This means they don’t benefit by selling you something you don’t need in a portfolio that doesn’t dovetail with your unique financial situation.

Plus, there are no SoFi management fees for automated investing and no trading fees.

SoFi will make investment recommendations based upon your age, income, and assets. And we will manage your portfolio for you, continually monitoring market conditions. As economic changes occur, we adjust for that to help minimize risk.

For convenience, you can access your investment accounts online or use the SoFi Invest app. Our platform is user-friendly and intuitive. As an investor, you also have access to our member benefits, including career services and community events, and can receive discounts on other SoFi products.

See how SoFi Invest can help you pursue socially responsible investing.

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SoFi can’t guarantee future financial performance, and past performance is no guarantee.
This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Advisory services offered through SoFi Wealth LLC, a registered investment advisor.

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