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This post is Part 2 in a series on responsible investing coming out this month. In this series, we’ll break down the basics and help you learn about socially and environmentally responsible investments and how you can take part no matter your level or how mhttps://financialgym.com/blog/message-from-the-ceo-never-wanted-to-sell-productsuch you have to invest. For the purpose of this series. I’ll be using the term Responsible Investing as a catch-all to include all of the strategies under this general umbrella such as SRI, ESG, and Impact Investing.
In the first post of this series we reviewed different strategies and options available for responsible investing. Any investor, regardless of how much they have to invest, can participate in any of the strategies listed. But where do you find those funds? How do you decide which to pick? We’ll answer those questions below.
1. Start investing sooner rather than later.
Most of our clients that want to get started investing haven’t started because:
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They feel scared that they don’t know what they are doing
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They are worried they might lose money
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They are paralyzed by indecision because of all of the options available to them
If you’re having trouble getting started for any of these reasons, the simplest and most cost-effective way to get started is with a robo advisor. We’ve discussed robo advisors before, but basically investing with a robo advisor is a way to invest in a portfolio tailored to your timeline for using your investment funds that invests using a computer algorithm with a goal to meet average market returns and reduce your costs. You don’t pick your own investments, but you do get to take advantage of the roboadvisor’s knowledge and strategy for your investments, eliminating the need to make your own investment choices, and the need to feel like you know everything about investing.
Because of the growing popularity of responsible investing, many robo advisors are now offering different responsible investments, including ESG funds, SRI funds, and funds focused on women or minority run companies.
Here is a list of a few robo advisors that offer responsible investment options:
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Broad Impact Portfolio: Invested in funds with high ESG ratings
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Social Impact Porfolio: Invested in funds focused on minority empowerment and worplace gender diversity
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Climate Impact Portfolio: Invested in funds focused on reducing carbon emissions and funding green projects
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EarthFolio is the only online advisory service that invests exclusively in funds classified as Sustainable or Responsible. They require all funds to state the specific environmental, social and corporate governance (ESG) criteria used in stock or bond selection.
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Minimum Investment Amount = $25,000
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Ellevest Impact Fund: 53% of of all capital is invested in ESG and impact funds
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You can build a custom collection of sustainable or socially responsible investments or choose from a pre-made SRI Pie focused on areas such as minority owned business or environmental sustainability
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Their SRI fund uses a combination of exclusive and inclusive filters, focused on ESG factors
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100% focused on sustainable investing, offer 4 portfolios based on ESG criteria
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Offers 5 ESG ETFs that you can add to your portfolio manually
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If you qualify for US Direct Indexing, you can tell them which individual companies you do not wish to invest in using the restrictions list in your settings
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Offers a Halal investing option
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Offers an SRI option using proprietary ETFs that they screen for environmental and social impact themselves
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2. Be clear about what you will or will not invest in.
Is removing tobacco or gambling companies from your investments enough? Do you care about removing the biggest polluters from your funds? Do you want to see measurable impact?
Creating your own set of requirements is the most important part of a responsible investment strategy, because that will help you narrow down your choices and find the right fit. My advice is to sit down with a pen and paper and write out your investing mission or values and a list of what you definitely want to exclude, might be okay including/excluding, and any areas of focus.
If you find that your requirements are pretty broad, an SRI or ESG fund might be the perfect match for you. But if you’re very specific about not including a long list of industries, or requiring a measurable outcome in terms of social or environmental impact, a more hands on approach might be a better choice.
If you have a particular theme or outcome that you’re looking for, you might consider an impact investment fund or platform that you can invest in directly. There have been a number of platforms in this space that have shut down unfortunately, so options are limited in the US right now, although in Europe and Canada, impact investment apps are becoming increasingly popular.
Here are a couple of impact investment platforms that require impact reporting:
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CNote: Minimum Investment Amount | $5
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A women-led impact investment platform offering bond market investments through CDFI’s with a focus on financial inclusion and closing the wealth gap.
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OpenInvest Minimum Investment Amount | $100
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Allows you to focus on what you care about most (climate change, social equality, etc) so that your investments will directly align. OpenInvest will work to maximize your impacts, which you’ll find measured via your online dashboard, and you’ll be able to join movements, engage, and use investor power to make your assets grow directly with the market.
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ImpactAssets Minimum Investment Amount | $5,000
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Offers a Donor Advised Fund with a number of different impact focused portfolios
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A second approach would be to choose your own investments (or DIY). This means opening an account with a brokerage or online investment platform such as E*Trade, Vanguard, or Fidelity that allows you to select your own investments from a wide variety of options. Some of the robo advisors listed in the last section also offer this feature, such as M1 Finance.
Just because you decide to DIY doesn’t mean you need to buy individual shares of hundreds of different companies. There are many ETFs and mutual funds out there managed by impact investors or responsible investors that may meet your investment criteria. You could also consider focusing your investment on a particular theme, such as carbon emissions reduction, and choosing funds that follow that theme.
3. Do your research!
Whether you invest through a robo advisor, a low cost brokerage, or anywhere in between, know that just because a fund says that its ESG or socially responsible doesn’t necessarily mean that it meets your needs. Make sure you look up any fund that you are investing in and understand their criteria for including or excluding different companies or sectors, their investment thesis, and what companies are actually in the fund.
You may find that some funds are not actually that different from a standard S&P 500 ETF, while others will look dramatically different. Keep in mind that some ESG, SRI, and impact funds may also command higher fees or expense ratios often due to the additional number of fund managers or additional considerations involved in managing that fund.
A couple of resources that do a great job of comparing ESG, SRI, and Impact Funds, their focus, strategy and fees are:
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US SIF’s Sustainable Investment Mutual Funds and ETFs Chart: https://charts.ussif.org/mfpc/
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As You Sow offers expert reviewed ESG and SRI funds in multiple areas: https://www.asyousow.org/invest-your-values
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Look up and compare funds with using MorningStar: https://www.morningstar.com/esg
4. Start investing!
There are so many options out there! That doesn’t mean that your first foray into responsible investing has to be perfect. Starting with eliminating particular industries is already a great move, and you can always change up your strategy or get more specific over time.
