Investing in socially responsible companies is one way of changing the world for the better, but it takes careful research to select those which best match your criteria.
Microsoft, for example, doesn’t appear in one of the more well-known socially responsible funds – Parnassus Core Equity Fund – yet that doesn’t indicate any issue with them as an organization.
1. Environmental Impact
Middle-market companies can play an active role in helping the environment by purchasing recycled or green materials, investing in sustainable technologies, partnering with organizations that support sustainability initiatives or encouraging their customers to purchase products with reduced carbon footprints. There are various ways in which middle-market businesses can contribute positively.
Investors today want to understand what impact their money has on the world, which has given rise to socially responsible investing (SRI) and ESG investing, which focus on environmental, social, and governance performance of a company’s operations and products.
SRI investments tend to exclude companies engaging in unsavory industries like alcohol, tobacco, fossil fuels and fast food. Furthermore, investors may use strategies such as positive and negative screening in order to make their investments more socially responsible.
Smaller companies may be more effective at attracting sustainable and socially responsible investors than larger ones because of their greater access to resources and expertise for creating a sustainability team, creating eco-friendly offices or forging high-level partnerships in sustainability initiatives. Furthermore, SMBs may enjoy closer customer relations that allow them to connect on an intimate level about sustainability initiatives.
No matter their size, business owners can use shareholder activism to promote sustainable and ethical practices within their organization. This may involve filing or co-filing ESG shareholder resolutions, reaching out to management directly, joining shareholder coalitions or supporting legislative efforts.
2. Social Impact
By investing in sustainable and socially responsible companies, you can have a significant positive impact on society. To do this, ensure businesses source products ethically while treating employees fairly. Likewise, avoid unethical practices like illegal deals and exploitative advertising practices as much as possible.
An investment portfolio that emphasizes social impact over financial returns can also be an excellent way to demonstrate consumer care about more than just the bottom line of companies. According to one study, 66% of people around the world were willing to pay more for sustainable products while this number rose even higher among millennials – an indicator that consumers care more than just profits when making decisions.
Sustainable and responsible investing encompasses more than social impact; it also considers environmental sustainability, alternative energy solutions and corporate governance – factors essential to global society and may help companies mitigate risks they cannot control such as droughts, high energy costs and labor unrest.
Keep in mind that every company exists within its social context, and as an investor you should assess your role in its issues. If your investments produce harmful chemicals that mistreat LGBTQ employees, for example, or investments that support women or Black communities may warrant divesting.
3. Community Impact
Many individuals recognize the impact that companies’ actions can have on local and global communities, so they seek out those with corporate social responsibility programs (CSR) which share their concerns regarding important issues that they care deeply about, taking proactive measures to address them – this form of corporate social responsibility (CSR).
Examples of Corporate Social Responsibility efforts can include environmental, philanthropic and volunteering activities. Environmental efforts focus on reducing carbon footprints – an ongoing challenge for any business regardless of size – while philanthropic endeavors involve donating money or products to charities and local community programs; volunteering is another effective means of making an impactful statement about corporate responsibility efforts.
Volunteering is an engaging way for businesses to get involved, and can be particularly effective if linked directly to the mission or operations of their business. Millennials in particular are drawn to brands who engage in community impact efforts at local level.
People often worry that investing in CSR initiatives will diminish their bottom line, but this is not true. Companies that find ways to balance ethical stance with profit goals tend to receive an incentive from investors; for instance, General Mills implemented energy monitoring systems to reduce electricity use which saved them $600,000. Community impact has numerous advantages for small businesses looking to build brand recognition and retain customers.
4. Employee Impact
Investors appreciate when companies take sustainability efforts seriously, which strengthens their perception of their ability to meet financial goals and increase the likelihood of investment. Middle-market companies can capitalize on this by publicizing their sustainability efforts.
Gen Z and millennial investors, in particular, favor investments that prioritize environmental concerns when selecting businesses to support. Furthermore, this market segment often prefers companies who employ veterans, young professionals just starting their careers or refugees as employees – those without ESG policies in place risk being shut out from this lucrative segment of the market.
Companies that make sustainability their top priority can increase profits through reduced energy and waste costs, as well as gain access to funds that enable them to tackle global issues such as climate change or poverty while meeting financial goals.
Socially responsible investors typically look for profitable companies that demonstrate strong commitments to sustainability in their business practices, the way they treat employees and how they engage with the community. They tend to avoid investments in industries such as guns, tobacco, adult entertainment and predatory lending that might present potential conflicts of interest and use negative screening systems such as those by Screenwise to identify those involved with such activities.