Socially Responsible Investing – Is It Worth It?

It’s the time of year when our thoughts turn to helping others. And, as an investor, that can often mean looking for investments that “do good”. But avoiding the “sin stocks” – alcohol, tobacco, gambling, and oil (yes, oil is now a sin in some circles) can have you lagging the market for years to come. So, before you throw all your money at the latest alternative energy idea, consider approaching this piece of your portfolio as you would the rest – with research, discipline and diversification.

Socially Responsible Investing, or SRI, has been around for a long time now. Its definition has broadened as it has also become more clearly defined, but if you are going to take an SRI approach to your own portfolio, here are some factors (or screens) that many of the well-known SRI managers use to evaluate companies:

Corporate Governance & Ethics

Oh if we had a penny for every company we thought was ethical….only to be proven wrong. Yup, this is a hard one to ascertain but more and more research services are giving corporate governance a grade on the analyst’s report. Is company management aligning their interests with you, the shareholder? How much are they paying themselves? Are they dealing with major compliance or legal issues in their industry?


What exactly is the company’s impact on the environment? Are they actively trying to improve that impact? If the EPA has set up camp outside corporate headquarters, that may not be a good sign…

Workplace Safety

This might be one screen where you’ll need to rely on the experts, but if the company has a record of frequent employee accidents or a lack of established safety programs, I’d look at another candidate.

Product Safety

This is where all those beer & tobacco companies get excluded. Is the product safe for the consumer? Do they use animal testing? Beware of being too strict here – some companies who are doing a lot of good have to use some animals for testing, but have very specific standards for humane treatment.

Human Rights

Pretty basic, huh? Maybe here in the U.S. it’s a given, but what about overseas? Are they in cahoots with governments that ignore basic human rights?


What’s it like to work there? Are they a country of old men or a Coca-Cola commercial? Everyone seems to have a diversity policy these days, but are they committed to promoting women & minorities? A quick peek at the Senior Management photo in the Annual Report can give you a clue to their diversity, or lack thereof.


Is the company a good corporate citizen in their local community? Funding local events is a start, but are they actively trying to help those who are underserved? Do they encourage employee participation? Again, many companies pay lip service to community support, but what are they really doing and is it with money, time or both?

Some of these screens may be more important to you than others – and that’s okay. It may take some digging through analyst reports, 10-Ks and proxy statements to get a feel for the answers. And many people start their SRI investing through mutual funds that do the research for you.

But here’s the most important screen of all: Scrutinize those performance returns just as you would any other stock or mutual fund; after all – you still want to make some money on your investment, right?

About the author

Lea Ann Knight, CFP®

Lea Ann is the Principal of Garrison/Knight Financial Planning as well as the creator of the financial literacy site, Financially Fit After 40. She also writes a monthly column as the Money Expert for All You Magazine.

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