Socially responsible investing: what it is and why you should care

Socially responsible investing: what it is and why you should care

Because you shouldn’t have to compromise your values to make money.

Socially responsible investing: what it is and why you should care

    Socially responsible investing (SRI) is a philosophy of investing that involves investing money in companies that have a positive social impact.

    If you’ve ever heard the saying, “be the change you want to see,” this would be “fund the change you want to see in the world—while still making a profit.”

    Socially responsible investing is important for people (especially young, socially-conscious investors) who want to support businesses that make the world a better and often more sustainable place—who want to make money and provide products and services while also making a difference.

    Socially responsible investing explained

    Socially responsible investing is different from normal investing because it takes the primary motivation off of making money and places it instead on investing in companies that embody certain ethics or promote or pursue certain causes.

    With social investing, returns are often measured not just with monetary profit, but also through impact in a community or on certain social causes, etc.

    These include causes like:

    • Gender and racial diversity
    • Positive environmental impact (low carbon, etc.)
    • Good corporate governance
    • Companies that avoid “sin” industries (tobacco, gambling, etc.)
    • Companies that don’t profit from war or violence
    • Faith-based companies (if that’s your jam)

    SRI can be super positive for an investor’s psyche—and for the rest of the world—but it’s also often riskier than traditional investing and often produces lower returns. This style of investing has grown in popularity tremendously over the past several years, but it’s still a very niche area.

    All of this is to say, socially responsible investing has a lot of positives, but it’s usually not the best way to invest your entire portfolio. Investors may be better just using part of their portfolio in social funds while using index funds for the rest.

    ESG vs SRI

    In many ways, socially responsible investing is very similar to environmental/social/governance (ESG) investing—many people even use the terms interchangeably.

    But, these two investing styles do have differences.

    ESG is about investing in companies that demonstrate responsibility in environmental, social, and governance issues—all worthwhile aims. But, SRI is all about investing to make an IMPACT—investing in companies that create change, rather than just showing preference to companies that have good standards.

    Top socially responsible investments

    Fund What it’s good for
    VFTAX Diversified social-positive investments
    DSI Positive returns with good social impact
    CRBN Supporting companies with zero carbon emissions
    TSBIX Generating income from socially-responsible investments

    There are dozens of socially-responsible funds that investors can choose from. However, many funds are considerably smaller than those we’ve chosen to highlight. Others charge higher expense ratios—which can eat into investor profits, which are often already diminished.

    And, while there are other great funds worth mentioning, we also choose to exclude many that have so far failed to produce positive returns for investors over the past year.

    These are the best socially responsible investments we could find for investors to make an impact AND a profit:

    Vanguard FTSE Social Index Fund

    This Vanguard fund is a broadly diversified fund that is designed to track the performance of the Financial Times Stock Exchange (FTSE) 4Good US Select Index. The fund invests in companies that make up that index.

    Like other Vanguard funds, it also has extremely low costs, with an annual expense ratio of just 0.14%. However, the company also has a high minimum investment of $3,000.

    The fund has generated returns over 7% year-to-date (YTD) and over 22% over the past 12 months.

    iShares MSCI KLD 400 Social ETF

    This social fund from iShares tracks the performance of the MSCI KLD 400 Social Index, which is comprised of U.S. companies that have positive impacts in environmental, social, and governance issues.

    This is another fund that has a low expense ratio of just 0.25%. It has returned over 6% YTD and nearly 20% over the past year.

    iShares MSCI ACWI Low Carbon Target ETF

    iShares Low Carbon ETF is designed to follow the MSCI ACWI Low Carbon Target Index, so it invests in companies that have no carbon emissions or low potential emissions (from fossil fuel reserves).

    Like the other iShares ETF, this fund has a low annual expense ratio of 0.2%. While it has year-to-date returns of just 1%, it has returned about 14% over the past 12 months.

    TIAA-CREF Core Impact Bond Fund

    TIAA-CREF is one of the largest asset managers in the world, with over $1 trillion in assets under management. The Core Impact Bond Fund is designed to produce income for investors while investing predominantly in bonds issued by companies that meet certain environmental, social, and governance criteria.

    This fund from TIAA has returned just 0.5% YTD and about 7% over the past year.

    The costs of socially responsible investing

    Many SRI funds from mainstream providers have similar costs to traditional funds, but costs of some funds are much higher. Many of the funds we’ve highlighted have annual expense ratios under 0.3%, which is very good by any standard.

    But, in the course of our review, we also found funds that charge expense ratios of 1.3% or more—so it’s important for investors to check before investing.

    It’s also important to remember that fees aren’t the only cost to socially-responsible investing. Both investors and managers calculate returns differently than traditional asset managers—they consider not just monetary returns, but also non-monetary returns, such as the progress made on one or more social causes.

    And, even among profitable funds, returns are usually several points lower than other diversified funds.

    Lastly, investors should know that many of the companies funded by SRI funds are high-risk. These companies have lofty goals that can make it difficult to turn a profit. When some of these investments don’t work out, losses in a portfolio can eat into investors’ returns.

    So, the decision that investors have to make is whether socially-responsible investing is worth doing with part of your portfolio. And, it may be—if it helps you sleep at night.

    Pros & cons of Socially Responsible Investing


    • Returns are monetary AND non-monetary
    • Investors get peace of mind
    • Investors can put their money behind causes they care about
    • Diversified funds are available
    • Funds can still produce strong positive returns


    • Many funds’ returns lag the market
    • Funds often have higher costs
    • Losses are not uncommon

    Can capitalism and community impact ever really coexist?

    It often feels like caring about the greater good and partaking in corporate America involves some level of sacrifice. If corporations and companies are for-profit, can they ever prioritize anything above profit? The idea of socially responsible investments suggests that companies and even corporations can exist, make money, and positively impact our planet and society.

    Do you think this is even possible?

    Many big corporations such as Coca Cola, Nike, Jeep, the list goes on and on… who lead with corporate giving strategies. but are absolutely contributing to destruction to at least some degree, how do you weed out the truly good from the clever branding?

    Sound off in the comments!

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    Dock David Treece

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    Dock is a former financial advisor and an experienced real estate investor who loves helping people find ways to build and conserve wealth. He has been featured by CNBC, Fox Business, and Bloomberg.