How Socially Responsible Investing Is Reshaping Wealth Creation

The economy changes rapidly; so, too, does the way people invest. And in recent years, socially responsible investing (SRI) has seen increasing popularity.

There are many reasons for the increase in popularity. One of the biggest reasons has been the long-held belief that investing in ways that align with our values means accepting a lower rate of return.

But it’s becoming increasingly clear that that is not the case.

In addition, socially-responsible investing is becoming more accessible as more firms add value-based options to their services.

In this post, we’ll take a look at what some of those options are and why they don’t necessarily require investors to compromise on returns.

Sustainable Investing Post

Socially-Responsible Investing

Socially-responsible investing can mean different things depending on who you ask. However, SRI generally involves investing in line with environment, social, and governance (ESG) issues.

Funds with an ESG focus invest in companies that are addressing ESG issues and actively avoid those with a poor track record in those areas.

One of the investment advisors making SRI more accessible is Betterment. It initially added a socially-responsible portfolio in 2017, then expanded those offerings in 2020.

Other robo-advisors, including Wealthfront, Personal Capital, and Ellevest have SRI options as well.

How Do We Quantify Social Responsibility?

One important point about SRI is that there must be a way to quantify it. In other words, we must have real, observable data.

Without such data, we could only make subjective assessments of how different investments meet ESG criteria.

Fortunately, there are a few organizations that evaluate SRIs using a data-driven approach. Two such organizations are MSCI and Fossil Free funds.

MSCI Ratings

Data from MSCI is one of the main criteria Betterment uses to assess its ESG funds. MSCI’s comprehensive assessment uses three pillars to score ESG investments: environment, social, governance.

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Disclaimer: Before you throw out all other financial advice you’ve been given and dedicate your life to following my advice, please be aware that I am not a financial expert. I have never ...

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