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What’s Socially Responsible Investing?

If you want to invest and also feel good about the types of investments you own, you can do so by using a socially responsible investment (SRI) strategy.

SRI strategies focus on investing in companies that consider environmental, social, and governance (ESG) factors. What that means is these companies are more likely to be concerned about the impact their business has on the environment, human rights issues, and providing sensible pay packages to executives. In other words, you’ll be less likely to be investing in companies in the energy sector or that do business in countries that have a record of human rights abuses.

The popularity of SRI strategies has grown in recent years. According to the latest data available from the Responsible Investment Association of Canada, there was more than $1 trillion invested in responsible investment strategies at the end of 2013, which was a 68% increase from 2011.

If you decide to use an SRI strategy, what are your options?

Last week, robo-advisor Wealthsimple announced it would provide SRI portfolios to its customers. And another robo-advisor, ModernAdvisor, began offering responsible investment strategies when it launched in January. The portfolios are built using exchange-traded funds (ETFs) that specialize in SRI strategies.

There are also mutual funds available, such as ones offered by Ethical Funds, and IA Clarington. If you don’t want to pay high management fees, there are many SRI ETFs to choose from. Here are a few examples:

  • iShares MSCI ACWI Low Carbon Target ETF
  • iShares Jantzi Social Index ETF
  • Vident International Equity Fund
  • PowerShares Cleantech Portfolio
  • iShares MSCI KLD 400 Social ETF

There are also safer investment options if you don’t want to invest in stocks. Earlier this year, Kitchener, Ont.-based Mennonite Savings and Credit Union became the first Canadian financial institution to offer GICs that qualify as socially responsible investments. The company has developed a socially responsible lending criteria to incorporate into its agricultural and commercial lending practices. Because these loans are funded by GIC deposits, the screens ensure the GICs are SRI compliant, the credit union says.

There are many different types of investment strategies but not many allow you to choose investments that are aligned with your values. A socially responsible investment strategy allows you to make money and feel good at the same time.

The ABCs of ESG

Socially responsible investing encompasses environmental, social, and governance (ESG) factors when choosing investments.

  • Environmental concerns: Climate change, sustainability, hazardous waste, and water scarcity.
  • Social concerns: Human and labour rights, diversity, health and safety, and animal welfare.
  • Governance concerns: Board diversity, executive compensation, shareholder rights, and board accountability.

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Flickr: Andreas Poike