Concerned about the social impact of your investment portfolio? You’re not alone. Ethical investing, impact investing and socially conscious investing are all increasingly popular practices rooted in the same idea: to do well while doing good.
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Unfortunately, there’s no universally accepted metric to evaluate the social impact of your investments. It’s up to you to look into each new asset you’re interested in and make your own judgments.
Here’s a quick guide to evaluating your choices for socially responsible investing.
Outline Your Values
To maximize your impact, it’s important to understand what exactly you’re looking for. In other words, what does an ethical investment look like to you?
In a 2022 interview with NPR, financial consultant Manisha Thakor compared ethical investing to dating: “Everybody has sort of their own definition and take on it.”
Her advice was to look at a potential investment like a potential partner — make sure your values and definitions of right and wrong are aligned.
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Look Into ESG Metrics
ESG stands for environmental, social and governance. Though not required by law, ESG metrics can help a company evaluate its own impact and publish the results for consumers and investors alike. You can also develop your own ESG criteria to assess potential investments.
Here are some examples of ESG values and initiatives you might look for before investing in a company.
Environmental
- Climate impact: Is the company taking steps to reduce its greenhouse gas emissions? Does it have a clear plan to become carbon-neutral in the coming decades?
- Waste: Does the company responsibly dispose of waste and pollution from its manufacturing processes?
- Local impact: How do the company’s office buildings or factories impact the local environment? For example, does the company overuse water in a drought-prone region?
Social
- DEI: How does the company employ diversity, equity and inclusion practices?
- Political engagement: Does the company or any of its individual leaders endorse any political campaigns? Do those endorsements align with your values?
- Community engagement: Does the company take any action, through donations or in-company practices, to support underrepresented communities?
Governance
- Leadership structure: Does the company have fair promotion practices and a diverse leadership board?
- Fair employment: Does the company offer fair pay and competitive benefits? If it operates overseas, does it employ fair labor practices at every location?
- Legal history: Does the company have a history of lawsuits, fines or noncompliance? How has it publicly addressed those issues?
Do Your Research
Not every company publishes its ESG metrics. To answer the questions listed above — or any other questions you have about a potential investment — you may need to do some independent research.
Start on the company’s website to find its self-reported values. For example, on Patagonia’s website, you’ll find a tab labeled “Activism” with information on the company’s environmental practices and the campaigns it supports. On Starbucks’ website, you’ll find information about the company’s culture, DEI practices and other social initiatives.
However, remember that self-reported information doesn’t always paint the whole picture. You should look into external reviews and reports, as well. The Good Jobs First Violation Tracker is a great source you can use to find corporate lawsuits and violations.
You can also learn about a company’s biggest scandals through a quick Google search — just remember to look for verifiable, data-based reports, rather than opinion pieces.
Other Ways To Ethically Invest
There are many different ways to invest your money beyond buying stock in an individual company. Here are a few other types of investments that can have a positive impact.
Mutual Funds
Investing in a mutual fund or exchange-traded fund is a low-risk way to grow your wealth. Although you typically can’t control which companies your mutual fund is invested in, you can look for specific funds that focus on certain ESG criteria.
Crowdfunding
Crowdfunding platforms allow you to invest a small amount into startups. This is a riskier form of investment, but if you’re up for it, you can look for new companies with strong values and mission statements you want to support.
Real Estate
If you’re interested in a real estate investment, apply your own ESG criteria to the project. For example, will the investment add or detract from affordable housing in an impacted area? Can you prioritize environmentally friendly construction?
For a smaller, lower-risk investment option, you can also look for real estate investment trusts that prioritize social and environmental responsibility.
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This article originally appeared on GOBankingRates.com: How To Evaluate the Social Impact of Your Investments
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
