February 19, 2025

Socially responsible investing involves keeping your values and beliefs at the forefront of your portfolio. The investments you choose support causes you care about, and the businesses and organizations that you believe are making a difference in the world.

But you don’t have to forego your financial goals when you’re trying to invest responsibly. There are several strategies you can use to build a portfolio that marries values and ethics with personal goals.

Understanding SRI in the Modern Context

Socially responsible investing (SRI) or environmental, social and governance (ESG) investing in the U.S. can be traced back to 18th century Methodism¹. At that time, Methodists were against the slave trade, liquor and tobacco sales, smuggling and gambling, and they avoided investing in companies that supported those practices.

The Quakers were another early American group that forbade investing in companies that supported slavery or warfare².

SRI really took root in the 1960s, when Vietnam protestors refused to invest in any company providing weapons for the war. Additionally, students demanded³ that university endowment funds not invest in defense contractors.

There are so many issues at the forefront of America today, and investors are passionate about supporting companies that align with their causes.

SRI Investment Approaches

There are a few main ways that socially responsible investors approach giving their support:

Negative screening is an investment method that involves excluding investments that work against your values. This is a slightly more accessible approach for investors, because it’s more inclusive, and leaves room for more neutral companies that are not negatively impacting your top causes.
Positive screening is the process of choosing companies that are making positive changes in the causes you care about most. It is a more exclusive investing method, which can make it more challenging to diversify.
Impact investing involves considering the overall impact of a business on society and/or the environment. You might look into a company’s values or corporate social responsibility before deciding to include them in your portfolio. Impact investing often includes industries like healthcare, education, agriculture and clean and renewable energy.

Performance myths and realities

There is a common myth that SRI results in lower returns, but that’s not actually the case. Most investors⁴ find that returns are right about where they anticipate them to be. For example, a 2020 survey found⁵ that over 88 percent of impact investors reported returns that met or exceeded their expectations.

Current market trends and opportunities

SRI is a mainstream movement today, with 77 percent of global investors expressing interest in sustainable investing⁶. More than half (57 percent) of those said their interest increased within the past two years, showing that SRI is becoming even more popular with investors.

Building a Values-Aligned Portfolio

Building a portfolio that aligns with your values doesn’t have to be difficult. If you’re new to SRI/ESG investing, you can start with a “tilt” method, meaning you weigh your portfolio slightly more with highly rated ESG companies. This approach helps you to keep your desired portfolio balance, with a gradual shift toward companies that fit within your standards.

But how do you find investments that you want to include in your socially responsible portfolio? Tools like the GRI Standards⁷, FTSE4Good Index⁸, and green funds⁹ can help investors find companies or indexes that champion the causes they want to support with their money.

All investing comes with risk, and SRI is no different. Shifting consumer values can make it difficult to anticipate long-term trends, and socially-conscious companies might not perform as well as others.

Advanced SRI Strategies for High Net Worth Investors

Direct impact investing opportunities

As a high net worth investor, there are some impact investing opportunities that can be a beneficial addition to your portfolio. These include:

Private market investments: Many impact businesses are just starting up, which means investors can give a smaller amount of capital to support the businesses they believe in. This is a newer segment of the market, so it can be riskier than more traditional private investments. However, as private market impact investments grow in popularity, they will become more accessible for investors.

Sustainable real estate: If you include real estate in your portfolio, you can opt for properties built with sustainability in mind. This is a simple way to shift to impact investing without having to change your strategy too drastically.

Green bonds and other fixed-income options: Green bonds help to fund sustainable projects across a variety of industries, including pollution prevention, water and wastewater management, renewable energy, clean public transportation and more. Like traditional bonds, green bonds tend to be a lower risk investment, and an effective way to gradually shift your portfolio to impact investments.

Tax Considerations in SRI

You can adopt a socially responsible investment strategy while still being mindful of the tax implications to your portfolio. Here are some tax considerations to keep in mind when you’re building your portfolio:

Tax-efficient portfolio management

You don’t necessarily have to take on a dramatically different approach when you’re using SRI, ESG or impact investing strategies. The principles are the same for taking on any investment: diversify your investments, be aware of fees or penalties, and try to avoid impulse decisions when you can.

Charitable giving strategies

Giving to charity includes perks for your investments, too. For example, you can give appreciated assets to charity via a donor advised fund (DAF,) and cut down on the capital gains tax you would have incurred from selling those assets.

Another strategy is to group your charitable giving from multiple years into the same year, allowing you to take advantage of the itemized deduction for additional tax savings.

Qualified Opportunity Zones

Qualified opportunity zone (QOZ) funds are investments that may provide tax breaks for investing in qualified opportunity zones, or communities that have been identified as being economically distressed.

When you invest through a QOZ fund, you may temporarily defer capital gains taxes on the appreciated assets you invest in the fund. There is a time limit on when you can invest, however, so make sure you’re aware of the stipulations¹⁰.

Family Engagement Through SRI

Adopting an SRI strategy can become a part of your family legacy. When you align your family values with investments, you are supporting the companies and organizations that you believe will make a positive impact for future generations.

You can also commit to SRI, ESG or impact investment strategies through your family foundation, or create a family impact investing statement that specifies how impact investing fits into your current and future goals.

The Future of SRI

The causes you believe in are deeply unique and personal to you – and so is your portfolio. You don’t have to sacrifice your values to be a successful investor.

Fortunately, there has never been a better time for investors who want to support certain causes or industries. There is greater support, enthusiasm and innovation in SRI than ever before, which means investors have more options to align their portfolio with their beliefs. There is also more transparency and regulations, which can help investors vet their options and make informed decisions about how they choose to invest.

_Sources:

Meris Collier, CFP®

COLLIER, Sustainable Wealth Management

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Socially Responsible Investing for the Affluent – Aligning Your Wealth with Your Values