Socially Responsible Investing in Your Financial Planning

by | Dec 17, 2020 | Financial Planning, Insights, Wealth Management

Socially Responsible Investing, or SRI, has existed as a values-based niche in the investment world for decades. It has a simple objective – financial gain through investment in companies that have a positive impact on society. However, while the principle is simple, the application varies widely. Financial gain can be objectively calculated by numbers on a page, but social impact convictions are far more subjective and differ by person and organization. Social impact approaches tend to fall into one of two categories: industry-focused and practice-focused.



Industry-focused strategies measure social impact based on a company’s industry either by avoiding some industries or proactively investing in others. Many of the first SRI funds were industry-focused, seeking to avoid certain controversial industries like alcohol, tobacco, and firearms or applied a faith-based filter.

A fund might start with an index like the S&P 500 or Russell 3000 and eliminate companies that violated certain social or ethical principles. In one fund example, this eliminated 150 of 3,000 companies in the Russell 3000. Passive strategies like exchange traded funds or index funds apply this filter to a chosen index and invest in the remaining companies. More active mutual fund strategies take this socially screened pool and invest in companies that meet additional financial criteria like growth or cash flow.

Other strategies invest only in select industries like clean or renewable energy. They start with a focused, often singular industry type and then select companies they expect will provide the best financial gain.



Practice-focused strategies focus more on corporate practices rather than specific industries. ESG, or Environmental, Social, and Governance, is the most popular approach to a practice-focused SRI strategy. According to Morningstar, a leading researcher in this field, ESG strategies invest in companies that meet a high standard in each of these three areas.

  • Environmental – companies are evaluated based on how their practices affect issues like pollution, energy efficiency, waste management, and biodiversity.
  • Social – companies are evaluated based on human rights and labor standards, customer and employee satisfaction, and community relations.
  • Governance – companies are evaluated based on board composition, executive compensation structure, and lobbying activities.
Aligning your values and resources

You might be planning for retirement, family legacy, supporting causes you care about, or an array of other goals, but simply put, socially responsible investing comes down to aligning your values and your resources. Because values are different for each person, there isn’t a single SRI approach that works for everyone. This can lead to confusion among well intended investors who want to make a positive impact but aren’t sure how to do it. Starting with your primary goal can help: are you more focused on avoiding investment in certain areas or proactively investing in certain areas?

If your goal is to avoid investment in certain companies or practices you see as harmful to society, applying one of these socially responsible investing approaches can be effective once you’ve identified the areas you want to avoid. In recent years, these strategies have become more viable from an investment perspective as their demand has increased and new, competitive solutions have become available.

If your goal is to proactively invest in certain areas or, said another way, impact causes you care about, taking a charitable approach might be the route you’re looking for – donating proceeds from your investment portfolios to organizations doing work you support.

We’re privileged to play a financial planning role in a wide range of impact-focused investing efforts, which includes helping clients define and refine their approach. For some, this means applying a Socially Responsible Investment strategy. For others, the most fulfilling and directly measurable impacts come from using their full array of resources – time, skills, and portfolio proceeds – to benefit their favorite causes on a local level.

For more, read 3 Ways to Give More and Feel Better About It and Person-to-Person Charity – What Is It and Why Should You Consider It.

The “Alterra” name was coined by joining the Latin roots “alter”, the origin of the word “altruism” with “terra” meaning earth or land. This name reflects the company philosophy of “clients before profits” and providing firmly grounded advice.

Ready to meet with
our team?

We’d love to have a discussion with you to find out if we’re a fit!

Share This