Over the past decade, social responsibility has become a growing concern in multiple fields. A push towards environmental sustainability, widely publicized corporate scandals, and the proliferation of social media have all contributed to this new era of heightened consciousness. The business world is no exception, philosophies such as conscious capitalism are leading the way for companies, consumers, and investors alike. As a result, socially conscious investing is becoming increasingly popular. Here are five ways to get started on your socially conscious investing journey.
Define your Goals
Investing is extremely personal, and when it comes to socially conscious investing, the process is even more intimate. That’s why it’s important to define your goals. Your goals should be predicated upon a combination of you’re financial endeavors, and your desired social impact. Asking yourself questions like, “ what do I believe in supporting?” and “what type of change do I want to see in the world?” is critical when determining the “social” and “conscious” aspects of your investments. There are tons of different options available, so understanding your ideological values can be instrumental in making the right investment decision.
In addition to understanding your desired social impact, it’s important to consider your financial endeavors. “What is my risk-profile” and “what are my desired returns?” These may be two of the most important questions to ask when considering your financial goal(s). As a rule of thumb, higher risk results in higher reward and vice-versa; this means that if your goal is to make a significant return with a minimal investment, you’ll need to assume more risk.
Determine Your Investment Impact
Before making any investment, individuals should have a comprehensive understanding of what that investment entails. In the world of socially conscious investing, there are three types of investments that reign supreme. Environmental, social, government (ESG) investments use a business’s relationship to environmental factors, social factors, and governance factors when determining impact. Socially responsible investing (SRI) follows strict guidelines which rule-out companies within industries like alcohol, tobacco, fossil fuels, etc. Finally, impact investing refers to investing in companies that generate measurable social or environmental impact. Investors should understand which investment framework they plan to follow when executing their investment.
Although it’s a socially conscious investment, it’s an investment nonetheless. That’s why it’s important to understand business fundamentals. Furthermore, If you’re making a socially conscious investment, understanding business fundamentals allows you to ensure that the organization you’re investing in will be a good steward of your money. Key value investing metrics include Price-Earnings Ratio, Price-To-Book Ratio, Debt/Equity Ratio, Price/Earnings To Growth and Free Cash Flow. If these ratios seem a bit overwhelming, investing in individual companies isn’t the only option for socially conscious investors.
Choose Your Investment Methods
There are multiple ways for investors to make an impact with their money. One way to do this is by investing in companies by purchasing stock. Companies like Patagonia and Toms Shoes have proven that socially conscious companies can be extremely profitable while making a positive impact on the world. Another option is investing in socially conscious mutual funds. A mutual fund is an investment vehicle made from a pool of different financial assets like stocks, bonds, and other assets.
Even major banks like Charles Schwab offer socially conscious mutual fund options. More recently, cryptocurrencies have become an investment option, as well as equity crowdfunding platforms.
New Online Investing Platforms
With rising interest in socially responsible investments has come the rise in online-platforms that make impact investing easier than ever before. For example, Orthogonal, a socially conscious holding company just announced the launch of their equity crowdfunding campaign on Wefunder (the Kickstarter for investing). The team’s goal is to democratize wealth by crowdfunding investments for as little as $100 to accredited and non-accredited investors. These companies are looking to bring a new type of investment model to the world. One that provides access to all levels of wealth, serves the greater good of society and provides opportunity for significant profits. With online investing platforms like Wefunder, Swell and Motif, you can uncover an array of investment opportunities in companies that cover industries and products that align with your morals, values and ROI goals.