This post has been brought to you in partnership with Scotia iTRADE. All thoughts and opinions are my own and do not necessarily reflect the views of Scotia iTRADE.
Today, informed consumers like to make decisions about the products they buy based on their values. They like to know they are choosing products and services that are in line with how they feel about the environment, society, and health.
Increasingly, consumers like to know they are supporting companies that “do good” in the world.
This value system can apply to investing as well. Do you really want to invest in a company, only to find out that its values are different to what you hold dear?
If you are interested in making sure that your investments stay in line with your values, you can consider socially responsible investing. It's possible to find programs like Scotia iTRADE that provide access and education on sustainable investing. Plus, you know that the companies you invest in are adopting practices that are less likely to do harm to the environment and the world.
What is Socially Responsible Investing?
Socially responsible investing, also known as sustainable investing, is the practice of investing in companies that engage in sustainable and socially responsible practices. It can also include the practice of investing in funds that are composed of companies that do their best to live by socially responsible principles.
Sustainable investing focuses on three main areas:
These areas allow you to figure out if a company aligns with your values of sustainability.
It's true that not all companies are going to hit every single item that indicates social responsibility. However, you can look at companies to get an idea of how well their practices and values align with the things that are most important to you.
This area of sustainability focuses on how well the company works to mitigate its impact on the environment. Does the company work to reduce its carbon emissions and the amount of air and water pollution it puts out? How does the company handle waste management? Does the company work toward energy efficiency?
You might also consider whether or not the company contributes to mass deforestation or water scarcity.
Next, consider the ways the company impacts society. Does the company actively promote product and consumer safety? Also, is there good diversity across a variety of communities? You can also look at things like employee engagement and wellness, and consider how well the company conforms to best labour standards.
The idea with the social piece is to discover whether or not the company treats others well, and whether it puts consumers and employees ahead of making even bigger profits.
This is the final piece of the sustainable investing puzzle when evaluating a company. Governance is all about how a company is run. It includes things like looking at how the board is put together and what kind of executive compensation is offered. You can also look to see if the political contributions and lobbying the company engages in match with your own personal values.
How do You Decide Which Companies to Invest In?
Now that you know you want involve yourself in socially responsible investing, how do you decide which companies are going to best fit your values?
The good news is that there are different ways to tell which companies to invest in.
First of all, there are actually index funds and index ETFs that focus primarily on socially responsible investing. You can look for those funds. You have a reasonable expectation that most or all of the companies in those funds will be sustainable, and it's one of the easiest ways to put your funds to work on your behalf.
Another way to look is to use Scotia iTRADE to find information about socially responsible investing. Scotia iTRADE is Canada's first online brokerage to launch sustainable investing tools for direct investors. You can use the tools to see how well companies rank, and make your choices based on that information. Scotia iTRADE has partnered with Sustainalytics to offer research that includes screeners with the sustainability scores of over 1,200 companies on the Toronto Stock Exchange and Russell 1000 Index so it's easier to filter the companies with the practices that are most in line with your own values and preferences.
Don't Base Your Decision on Sustainability Alone
It can give you a warm and fuzzy feeling to base your investing decisions on sustainability. However, it's important that you don't let emotion get the better of you.
Yes, look at sustainability. You can use the tools offered by Scotia iTRADE to find companies that engage in sustainable practices. But also look at some of the more traditional fundamentals as well, which is included in the same analysis.
The sustainability component shouldn't be the only thing you look at, but in the end, socially responsible investing can be one way to feel good and make sure your finances line up with your values.