As of this writing, the ice caps are melting, Lake Mead is going dry, the temperature in British Columbia recently hit 49°C. And Wall Street is, at long last, taking notice. Historically, funds and asset managers haven’t particularly cared about the environmental policies of the companies they invest in, so long as they made money. This is changing — there’s a strong argument that it may be too late, but still. The financial industry has begun building products for people who want to do good — or at least not cause harm, which — spoiler — is much more what a lot of these products are about — with the money they’re investing. These products are often called Socially Responsible Investing, or SRI.
Tons of small individual investors are now pumping money into SRI exchange-traded funds (ETFs) and the like. The issue is, because of how funds select their investments, a lot of these funds are filled with stocks in companies that aren’t responsible at all. And unless you have heaps of time to research and pore through prospectuses, it’s super freaking hard to know if any given SRI fund actually does what it claims to. (Which is why, a year ago, we shelved our old SRI portfolio and launched a new one that was built differently. More on that later.)
To help you figure out what SRI funds are good for, and how to know if they live up to their name, we drew up this handy guide to understanding just how responsible your SRI is.
What exactly is SRI?
Put simply, socially responsible investing is a strategy in which investors avoid profiting off companies that wreak havoc on society and the planet. How they decide which companies wreak havoc is variable. Funds tend to focus on environmental issues, but many are also designed, at least ostensibly, to also focus on sustainable growth, diverse workforces, and equitable hiring practices. The corporations they avoid are often the usual suspects: oil companies, weapons manufacturers, major carbon emitters. Many SRI mutual funds and ETFs aim to exclude these objectionable companies from their asset mix. (Some don’t, though; more on this later.)
