If you buy products from socially responsible companies – ice cream from Ben & Jerry’s (which opposes the use of growth hormones in cows), eyeglasses from Warby Parker (which sponsors the Buy a Pair, Give a Pair program) – then you might be concerned about where you invest your money.
Have you heard of ethical investing? Also called socially responsible investing, it's just like purchasing from companies that support the social good. You can start by investing in socially responsible mutual funds.
Ethical investors typically avoid companies that produce or sell harmful substances. Instead, investors can support companies that engage in social justice, protect the environment, and promote alternative or clean energy and technology initiatives.
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The field of ethical investing is bigger than it used to be. And what’s more, you don’t have to sacrifice returns for being well-intentioned.
The Benefits of Ethical Investing
Some of the biggest funds to consider include Parnassus Core Equity Fund (PRBLX) and Vanguard’s FTSE Social Index Fund (VFTSX). Both avoid companies that profit from harmful substances, materials, and practices. The SPDR SSGA Gender Diversity Index ETF (SHE) invests in companies with a greater gender diversity than others in the same field.
By gravitating towards these and other sustainable, responsible investments, people can rest assured that they’re steering clear of companies with adverse working conditions and harmful environmental practices.
Why give your money to a company that cares more about profit than social good?
As of mid-September 2017, both PRBLX and VFTSX had positive returns over the past 12 months: 0.94 percent and 1.49 percent, respectively. Investors don’t have to sacrifice their values to get a return.
The Downsides of Ethical Investing
All this said, ethical investments aren't perfect. They're subject to the opinions of the fund manager, whom you may disagree with. For example, maybe the fund manager may invest in Coca-Cola. You, however, don’t want to support a company making mass-produced sugary drinks, despite the stock’s positive returns.
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Another good example is Costco. The company is known for treating its employees well, but it's also a top seller of tobacco products. It can be difficult to find a company that’s perfect in your definition of social responsibility.
Socially responsible investing may also have smaller returns than you’d like. In fact, the tobacco industry has had the most successful returns since 1900, a fact that might surprise socially conscious investors. If you had invested $1,000 with Philip Morris (now Altria) in 1957, your investment would be worth $4.6 million.
So, is ethical investing worth it? In general, the more you can do to protect the environment and support companies with positive policies, the better. If more people invested in these companies, then perhaps more companies would be willing to become socially conscious.
