Socially Responsible Investing - How to Get Started Today!
Did you know that research from the Bank of America predicts that $20 trillion is set to flow into companies and funds that focus on socially responsible investing?
The transition among larger institutions is already taking place with research showing that socially responsible investing companies and funds have lost less than the overall market during down years, meaning that big players are holding on for long-term gains.
It's a dramatic shift that everyday investors cannot afford to ignore anymore. Read on to learn how you can capitalise on this seismic shift in socially responsible investing, starting today.
Table of Contents
- Socially Responsible Investing for Dummies!
- Socially Responsible Investing Performance
- Top 3 Socially Responsible Investing Stocks
- When to Invest in Socially Responsible Investing Companies?
- The Best Socially Responsible Investing Mutual Funds
- How to Start Socially Responsible Investing in Companies and ETFs
- Why Start Socially Responsible Investing with Admirals?
What is Socially Responsible Investing
Socially responsible investing, or SRI, is the process of investing in companies or funds that are deemed to be socially responsible. The concept of being 'socially responsible' can differ among individuals and it is sometimes also known as sustainable investing, green investing, ethical investing or impact investing.
As society's attitudes have shifted towards the world, investors have had to shift their approach as well. Most institutional investors use the categories of the environment, social and governance (ESG) for their socially responsible investing practices, as highlighted below:
➡️ Renewable energy
➡️ Climate change
➡️ Carbon emissions
➡️ Pollution and waste
➡️ Natural resources
➡️ Health and safety
➡️ Labour management
➡️ Data and privacy security
➡️ Human capital
➡️ Controversial sourcing
➡️ Business ethics
➡️ Anti-competitive practices
➡️ Tax transparency
➡️ Executive pay
➡️ Board diversity
Research from Morgan Stanley Capital International (MSCI) shows that 71% of individual investors are interested in sustainable investing. Perhaps more importantly, is that 84% of millennial investors say they are interested in sustainable investing. With a more than $30 trillion wealth transfer set to take place for millennials over the next few decades, the trend for socially responsible investing cannot be ignored.
While investors may try to choose SRI companies and funds that fulfil some, or all, of the criteria within the ESG framework, investors may also choose to avoid investing in companies, industries or sectors that are deemed to be not socially responsible. For example, socially responsible funds typically avoid investing in companies involved in tobacco, oil and gas, gambling, weapons and alcohol.
Make sure you are prepared to take advantage of this shift in investing with access to the right tools and products. The Admirals Invest.MT5 account allows you to invest in stocks and ETFs from 15 of the largest stock exchanges in the world with minimum transaction fees on US stocks of just $1 and commission from just $0.01 per share! Get started today by clicking on the banner below:
Socially Responsible Investing Performance
While many investors may be interested in building a socially responsible portfolio, many are hesitant to invest due to the impact it could have on performance. Ultimately, any form of investing is an attempt to make a profit. However, research around socially responsible investing performance is quite interesting.
Some studies suggest that companies that focus on ESG practices have lower volatility in their share price and are less impacted by a share price crash from instances of fraud, bribery or corruption. Companies that have poor ESG practices tend to have higher volatility in their share price and are more likely to be impacted by fraud, governance issues and accounting irregularities.
According to MorningStar research, in the first quarter of 2020, 51 of 57 (87%) of their indices that track sustainable companies and funds outperformed their counterparts in the broader market. Research from BlackRock has also shown that during the first quarter of 2020, socially responsible investing mutual funds and ETFs brought in $40.5 billion in new assets which is a 41% year on year increase.
One of the reasons SRI funds performed much better in the first quarter of 2020 may largely be due to the lower exposure of the funds towards energy. As many of these funds perform what is known as 'negative screening' they are less likely to hold companies in the energy sector which are still using fossil fuels which causes an increase in carbon emissions.
Fundamentally, socially responsible investing mutual funds select stocks with better ESG credentials. This means that the underlying companies within these funds are from different sectors that are focused on managing their environmental footprint, treating stakeholders fairly and governing themselves ethically. Companies with high ESG ratings are now at the top of the list for many institutional investors and booming millennials.
Before we look at some of the top companies and funds for socially responsible investing, it may be worthwhile downloading the MetaTrader 5 trading platform provided by Admirals. This will allow you to check the performance of the SRI funds, stocks and ETFs mentioned yourself.
You can download this platform completely FREE allowing you to access thousands of different stocks and ETFs to invest in and a range of advanced trading tools. Click the banner below to get started!
Best SRI Investments - Top 3 Socially Responsible Investing Stocks
Whether you are interested in socially responsible investing companies for the huge inflows many of them are receiving or to satisfy your own consciousness for socially responsible investing, knowing some of the big players in this field is important. While many companies are trying to increase their positive impact around the world, there are some who have made notable contributions that investors have taken note of.
Let's take a look at the top 3 socially responsible investing companies:
- Novo Nordisk (NVO)
- Microsoft (MSFT)
- Starbucks (SBUX)
1. Novo Nordisk (NVO)
Novo Nordisk is a Danish pharmaceutical company. While many may not put pharmaceutical companies anywhere near ESG practices, the business is not only dedicated to making life-saving insulin available and affordable for users around the world but it also has a strong environmental mission. The company aims to transition to a zero environmental impact business model and have already invested in a solar-powered farm in North Carolina, USA.
2. Microsoft (MSFT)
Many people may not know that Microsoft has been carbon neutral since 2012. The company set out a unique policy to include the cost of carbon into their annual budgets, incentivising their departments to reduce their emissions. However, in January 2020, Microsoft CEO Satya Nadella announced a bold environment sustainability initiative to be carbon negative by 2030. Another huge goal for the company is that by 2050 they will have removed more carbon from the environment than they have emitted since their founding.
Microsoft is another stock whose share price has moved steadily higher over the years. While there have been some significant dips during 2018 and 2020, these only fell to the 50-period weekly exponential moving average (red). The company's share price received a huge boost in early 2020 during the coronavirus pandemic as investors moved into technology stocks to capitalise on global lockdowns and a surge in remote working.
3. Starbucks (SBUX)
Starbucks is one of the founding members of the Transform to Net Zero coalition. Other members include Microsoft, Nike, Unilever, Danone, Mercedes-Benz AG, Wipro, Natura & Co and A.P. Moller - Maersk. Starbucks itself has had a strong reputation regarding corporate social responsibility for some time, as they have focused on 'green building,' supporting farmers for fair trade practices, removing plastic straws from its stores and maintaining 99% ethically sourced coffee.
When to Invest in Socially Responsible Investing Companies?
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For example, after searching for Starbucks in the Premium Analytics section from the Admirals Trader's Room, it provides technical events for short-term, intermediate-term and long-term trading and investing opportunities, as shown below:
A screenshot of the Premium Analytics indicator.
To access the Premium Analytics feature, simply click on the banner below:
Other companies worth mentioning include:
☑️ Alphabet (Google) is dedicated to reducing its carbon footprint and cutting back on greenhouse gas emissions. The company also has a 0% pay difference between its employees.
☑️ Disney launched the Disney Worldwide Conservation Fund in 1995 to support non-profit organisations which protect wildlife and ecosystems. The company has also managed to reduce emissions 44% from 2012 levels and make sure that more than 50% of waste from its theme parks did not end up in landfills.
☑️ Dell has committed to preserving the environment and promoting diversity in its businesses. So far, the company has used over 100 million pounds of sustainable materials in all of its products and has set up solar-powered classrooms.
☑️ Accenture is one of the world's largest consulting firms. While the company has helped its clients cut more than 300,000 metric tons of CO2 emissions, it also has plans to reduce its greenhouse gases by 11% from its level in 2016. Not only that, the company has a goal to have a workforce that is a 50/50 balance of men and women.
The Best SRI Funds
Socially responsible investing exchange traded funds (ETFs), or sustainable funds, have grown in popularity as investors become more conscious of where they put their money. In fact, the ETF industry itself has grown in popularity with total assets of around $417 billion in 2005 to more than $5 trillion in 2020.
An ETF is essentially an investment security that holds a basket of other securities. For example, a sustainable ETF would hold stocks that rate highly on 'sustainability.' This allows investors exposure to this growing style of investing without having to pick out individual stocks themselves. Let's take a look at some examples.
1. The iShares MSCI USA ESG Select ETF (SUSA)
The investment objective of the iShares MSCI USA ESG Select ETF is designed to provide exposure to a range of large and mid-cap US companies that are leading environmental, social and governance (ESG) practices. The fund also avoids exposure to companies with low ESG ratings.
MSCI provides ESG metrics to help investors measure just how much a fund is sustainable. These ratings can be found on the fund's factsheet, as shown below:
In the image above it shows that the iShares MSCI USA ESG Select ETF has an ESG Rating of AA and a Quality Score of 99.48%, as well as other metrics. The fund also details its exposure to different sectors.
Unsurprisingly, the energy, materials and utilities sectors are at the bottom as many of these companies may still have a high carbon footprint and rate poorly on environmental issues. Information technology companies and healthcare companies are the top two but with a significant margin of weighting in between them.
The fund's factsheet also provides a detailed weighting of the stocks it holds, providing useful insight to investors, as shown below by its top ten holdings (from 161 stocks in the fund):
This level of information is very useful to the individual investor. Not only can the investor choose to invest in the actual ETF itself, but they can also choose socially responsible investing companies and stocks from the ETF's holdings. After all, the ETF provider (iShares) has already done the work to find the best large and mid-cap companies that are leading the way in ESG practices. This can save a huge amount of time for the individual investor!
Did you know that with the Admirals Invest.MT5 account you can not only invest in SRI and ESG rated companies but also collect dividend payments from some of these companies?
This means investors can also build a passive income from a portfolio of stocks!
Start Socially Responsible Investing in 5 steps!
Once you've identified the right SRI stocks and funds for your portfolio, you can view their live price charts and access investing tickets directly from the MetaTrader 5 trading platform provided by Admirals! Simply follow these steps:
- Open your investing platform. If you haven't downloaded it, then do so here completely free!
- Select View from the top menu and open the Market Watch window which will open on the left side of the platform.
- Click the + icon on the last line and start typing the instrument you wish to trade on. The platform will provide you with a selection of different instruments for you to select.
- Drag the symbol onto the chart to view live prices and access an investing ticket.
- To open an investing ticket right-click on the chart, select Trading and then New Order. A ticket will open for you to input your own entry, stop loss and take profit levels, as well as your position size.
A screenshot showing the MetaTrader 5 trading platform provided by Admirals with a trading ticket open on the chart.
Why Start Socially Responsible Investing with Admirals?
✔️ Trade and invest with a well-established company authorised and regulated by the Financial Conduct Authority (FCA).
✔️ Trade and invest from the popular online trading platform MetaTrader for PC, Mac, Web, Android and iOS operating systems.
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One of the best ways to get started is to trial these services and test your ideas and theories by opening a FREE demo trading account! This means you can trade and invest in a virtual trading environment until you are ready to go live!
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or recommendation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.