Charitable giving might be on your mind as you list your resolutions for the new year. When people think about using money for a good cause, they often consider donating or supporting charity drives.
But obviously, you can’t give what you don’t have. It may not occur to many that investing is also an option. There is a way to invest for both financial and social responsibility.
This is known as values-based investing and here are the steps to apply this strategy to your portfolio.
1. Understand what values-based investing means for you
People have coined various terms to describe the act of investing for a good cause. These include values-based investing, sustainable investing, and ethical investing.
In general, they all refer to practice of choosing investments based on certain personal values instead of only weighing the financial benefits.
a. Set your standards
Principles and beliefs vary from one investor to another. That’s why value-based investing may look different for everyone.
To start, you need to understand your values and reflect on the causes that matter most to you.
Figure out what you want to achieve or support, such as programs to rehabilitate the environment or promote social equality. You may also want to lay down rules on investments that are at odds with your values.
b. Look for a method that suits you
Under the umbrella of values-based investing, there are different approaches that investors can consider. These include impact investing, Environmental, Social, and Governance (ESG) investing, and Socially Responsible Investing (SRI).
Study each method to find one that will help you apply the standards you’ve set. Learn more about these approaches in this article.
2. Research investment options
Once you’ve set your standards, it’s time to look for investment options that fit them. There are products like pooled funds or bonds that are meant to support social or environmental causes.
Another way to discover suitable investments is to look at reports and ratings. Some companies provide sustainability reports which show their impact on the economy, environment, and people.
There are organizations that rate companies' sustainability or ESG efforts. These reports and third-party assessments can help you judge whether an investment fits your criteria.
3. Find your match
Aside from your values, there are factors to think about when shortlisting your investment options. These are your risk profile, time horizon, and money goals.
You may also want to consult experts to help you tailor your portfolio according to your investor profile and personal values.
4. Monitor your investments’ performance
After making your values-based investments, it’s important to track their performance. This will let you know if your investments are living up to your expectations, whether they’re financial or sustainability goals.
