DIY investors who want their capital to do some good in the world while earning a fair return have numerous social investing options at their disposal.
Social investing is generally used as an umbrella term that includes various types of investment strategies aimed at generating positive social or environmental outcomes alongside financial returns.
This way of investing considers non-financial factors when deciding where to allocate capital.
Within this world, socially responsible investing (SRI), impact investing, sustainable investing, and responsible investing are often used interchangeably, but they can have distinct differences in their intentionality, approach and objectives.
Responsible Investing
Responsible investing is the broadest and most encompassing term. It refers to any investment approach that explicitly acknowledges the relevance of environmental, social, and governance (ESG) factors in investment decisions.
The goal is to generate long-term sustainable returns by considering a company’s impact on stable, well-functioning social, environmental, and economic systems.
Responsible investing can include a variety of strategies. For instance, screening companies based on ESG factors can help investors proactively invest in companies with strong performance in these areas. ESG screening can also exclude companies or industries with undesirable practices, such as tobacco, weapons, or gambling.
An easy way to gain broad exposure to companies with favourable ESG criteria is to invest in an exchange-traded fund (ETF), like the iShares ESG Aware MSCI USA ETF (ESGU-NASQ) available on the Clarity platform.
The fund tracks the investment results of an index composed of U.S. companies that have positive ESG characteristics as identified by the index provider while exhibiting risk and return characteristics similar to those of the parent index.
As part of its investment objective, this fund seeks to track an index that applies exclusion screening for companies that produce civilian firearms, controversial weapons, tobacco, thermal coal and oil sands.
Investing in companies aligned with a specific theme, such as clean energy or water management, offers a thematic slant to asset allocations within a broader responsible investing approach.
Investors can easily access opportunities in these sectors via ETFs like the iShares Global Clean Energy ETF (ICLN-NASQ), which focuses on renewable energy companies like solar, wind, and other sustainable technologies.
Responsible investing can also include investor stewardship, which entails actively engaging with companies through voting at shareholder meetings and dialogue to encourage better ESG practices.
Socially responsible investing
Socially responsible investing (SRI) is a component of the broader responsible investing landscape that focuses on the “social” aspect of a company’s activities.
This includes investing in companies that promote positive social outcomes, such as affordable housing, healthcare access, or community development.
Socially responsible investing can also involve excluding companies that engage in activities deemed socially harmful.
Sustainable Investing
Sustainable investing is a philosophy that seeks to align an investor’s portfolio with their personal values while also pursuing long-term financial performance.
The core idea is that companies creating value not only for shareholders but also for the environment and society are more likely to succeed in the long run.
Sustainable investing can involve screening companies based on environmental, social, and governance criteria, with the belief that this approach can mitigate risk and deliver strong long-term returns.
Impact Investing
Impact investing is an intentional and proactive form of values-based investing that seeks measurable benefits, not just clearly defined returns.
Investing for impact carries the strongest sense of intentionality. The investor’s primary goal is to create a specific and positive impact. The financial return is a secondary objective, but it is still important.
Impact investments often provide capital to projects or businesses that might not otherwise receive traditional funding, such as social enterprises or clean energy startups.
Given these objectives, impact investors are committed to measuring and reporting the social or environmental outcomes of their investments using very specific and defined metrics.
