Political parties and governments around the world are declaring a ‘climate emergency’ and for ethical investors, that’s throwing new light on the trend towards SRI, or Socially Responsible Investing.

You might have a life goal to make your fortune from investing and then use it to support worthy causes in your retirement.

But why wait? With SRI you can invest funds right now into private enterprises that are tackling some of the biggest challenges from climate change, to energy security, to feeding an ever-growing global population.

And unlike many worthy causes, putting your money into SRI investments can actually achieve a significant positive return on investment.

Why does SRI matter?

SRI is a natural consequence of the trend towards more socially responsible business during the 21st century.

While there were signs of this before the year 2000, it is particularly since the Millennium that more businesses have started to publish clear corporate social responsibility policies and environmental responsibility policies.

Some proudly support sustainable energy and other eco-friendly initiatives – Google famously have their grass cut by a herd of goats instead of a petrol-driven mower.

Elon Musk is revitalising the space exploration sector while simultaneously driving the market for electric vehicles and even self-driving cars.

So it’s no surprise that as the world’s biggest brands move towards corporate social responsibility, SRI is becoming an increasingly significant trend for investors too.

Be positive

SRI used to mean avoiding companies that did obvious harm to the environment, for example the big petrochemical brands.

More recently, it’s increasingly feasible to focus positively on eco-friendly businesses, especially with more of them publishing their policies for public scrutiny.

That means you can build an entire SRI portfolio instead of investing in mainstream brands and only excluding those that do obvious harm.

You can also find managed funds with a stated environmental commitment, whether that means they aim to invest in firms with a small carbon footprint, renewable energy suppliers, or some other eco-conscious attribute.

Best of all, because there’s a growing number of these funds, you now have a choice. You can find one that offers the closest match for your own eco-priorities, and hopefully still offers proven and reliable ROI.

How to judge an SRI investment

If you want to make an informed choice about SRI, you’re going to need another three-letter acronym: ESG.

ESG are Environmental, Social and Governance factors and together they describe how ‘responsible’ a firm is.

For investors who are primarily concerned about the climate, environmental factors will obviously take centre stage, but ESG means you can also check on social issues like the brand’s record on human rights, data protection and privacy, and governance like its board structure.

This allows you to tailor your investments even further, for example by choosing eco-friendly companies that also have female executives at board level.

Ways into SRI

Again, as the number of SRI investment opportunities has increased over the years, the variety of in-roads has grown too.

For relative newcomers to investing, a stocks and shares ISA is one way to go, and you may be able to find a provider with an ethical, environmental or sustainability-based ISA available.

Exchange Traded Funds (ETFs) are an increasingly popular way to invest into an entire index in one fell swoop, and again there are ETFs that aim to track sustainability indexes and spread your investment across multiple SRI stocks and shares.

Alternatively, you can go whole hog by investing directly in a managed fund – the fees will typically be higher, but you get the personal touch of an experienced investment fund manager who will hand-pick stocks he or she believes are a good fit for the SRI priorities of the fund.

Things to remember

SRI doesn’t have to be the defining factor in your portfolio, but it could be a guiding light in what you choose to invest in and what you choose to avoid.

For example, if you’re on the fence about a particular opportunity and you discover the company has a terrible environmental record, that could tip the balance against investing.

And finally, diversification is always wise to hedge against isolated shocks and losses – so whether you choose multinational brands with operations in multiple economies, or ETFs that track an entire sector at a time, spreading your funds can be a sensible long-term plan.

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Disclaimer: The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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