By Leif Kristjansen
Examining Why Socially Responsible Investing Momentum Is Growing
Investing in your future can also mean investing in the world’s future. More and more people are waking up to the fact that a winner-takes-all mentality is not the only way to approach life or investing. There is a better way!
Enter socially responsible investing (SRI). SRI is a process of using your money to invest in companies that make positive impacts on the world. It’s a big deal because you’re making money and you’re able to scratch that itch you have to improve the world you live in. It’s not often that money can buy happiness, but you do get that whole package with an SRI investment.
Even better, each socially responsible company and fund out there has a different angle that fits into the greater picture of building a better world. This gives investors room to put their money toward causes and movements that they feel especially passionate about but you’re still actually in it to make money.
Every investor who gets into SRI has a different reason. For some, the emotional payoff that comes from backing companies that do good is priceless. Others feel a heavy moral obligation to use the money they’ve been blessed with to fund worthy causes. Some feel so strongly toward some causes that they simply jump at the chance to merge their passion for investing with their passion for a specific cause.
I didn’t get to the best part though. It’s growing at a massive pace and every investor wants to jump on the next hit on the ground floor. Like buying into Apple before it took off, it can really net you some massive returns.
So today I just want to dive into five reasons behind the meteoric rise of socially conscious investing and why it’s likely going to continue in the future.
Reason 1: It’s Riding a Wave of Super Momentum
During the past decade, socially responsible investing has nearly tripled globally! It is especially strong among investors in the United States and heavyweight countries around the world ranging from Canada to Australia actually have 50% of their assets tied to SRI initiatives. Europe as a whole is also close to 50%. For investors, this is positive news because growth typically begets growth. That means that putting your money on investing into something good is increasingly becoming good for your portfolio.
Reason 2: There’s Really No Financial Downside
This tidbit will pique the interest of anyone who is a fan of index funds. Based on research from the Morgan Stanley Institute and the Social Science Research Network, the gains seen when investing in SRI funds and the S&P 500 are the same. The same goes for fees. So, financially you won’t lose anything, and mentally you are only winning.
Who wouldn’t want to put their money into SRI once they learn about it?
Reason 3: The Next Generation Is More Socially Conscious
Millennials and Gen Z can be expected to push the trend of socially conscious investing to the mainstream in the years to come. That means that getting in now will make you an early adopter. The younger generation’s desire to support socially conscious causes today is an indicator of their inclination to support socially conscious economic trends moving forward. Brands that focus on social responsibility, sustainable products and fair trade are the future of the “informed consumer” economy.
While socially responsible investing is on the rise among all demographics, millennials are pushing the trend at the highest rates. In fact, research shows that 31% of millennial investors either usually or always consider environmental, social or governance (ESG) factors in their investing. That’s a rate that’s more than double the percentage of baby boomers! While millennials only represent about 3% of all investments in the United States today, that number is slipping forward with each day.
Reason 4: Fund Managers Are Getting Behind the SRI Trend
According to research by KPMG, nearly all fund managers expect to adapt to increasing demand for socially responsible investing in the coming years. This is a very strong indicator that shows that the “buzz” surrounding the rise of socially responsible investing is actually shaping how industry insiders are plotting the way forward.
Reason 5: The World Needs It
This may be the most compelling reason for why the rise of socially conscious investing is inevitable. The world simply needs it as a way to create economic, ecological and environmental balance. Many people have grown tired with endless consumerism that lacks any redeeming qualities.
Socially conscious investing satisfies a need in us to balance the scales. While many people around the world generously donate to causes, socially responsible investing combines our self-serving interests with our desire to do good to create an engine for change that is truly unmatched. For socially conscious investors, the ability to know that their investment portfolios are also supplying clean drinking water to people halfway around the world is very satisfying. It creates a balance where money can be a real force for good.
Socially Responsible Investing Is the Future Financial Trend That Will Build the Future
It’s impossible to ignore the thirst for socially responsible investment vehicles. As the younger generation begins to build up wealth, it’s certain that these young investors will be looking to put their money where their souls are. Socially responsible investing is the best and brightest way to reshape the economic landscape of the world without necessarily “tearing it all down” because investors are using the frameworks that have built personal and corporate fortunes to enrich lives.
Leif Kristjansen is the co-founder of FiveYearFIREescape.com where he and his wife write about finances and early retirement for busy people. In their early 30s, they even retired from their corporate 9-5 and want to teach you how you can do the same. They have kids and a house in a high cost of living city but managed to succeed via saving skills and rental houses.