Home Investing How to Incorporate Socially Responsible Investing (SRI) into Your Retirement Plan

How to Incorporate Socially Responsible Investing (SRI) into Your Retirement Plan


When choosing investments for your retirement portfolio, your main goal is probably to generate the highest possible return on your financial assets. But did you know that you can also invest your retirement savings in ways that are aligned with your values and beliefs in order to make a positive social impact on the world?

Through socially responsible investing (SRI) — also sometimes referred to as impact investing or environmental, social and governance (ESG) investing — you can invest your retirement assets in companies that actively support causes you believe in. Alternatively, you can avoid investing in companies that manufacture products or provide services that conflict with your values.

Impact Investing Takes Off

SRI has taken off over the past 10 years, growing from about $3 trillion in invested assets in 2010 to more than $17 trillion in invested assets currently, according to the 2020 Report on U.S. sustainable and Impact Investing Trends. One out of every three U.S. dollars in total assets under professional management is now managed according to sustainable investing strategies, according to the 2020 report.

Also, more than half (56%) of U.S. investors believe that making a positive impact on society with their investments is either somewhat or very important, according to a 2019 study conducted by American Century Investments. This was up from just 38% three years earlier.

Impact investing is especially popular among Millennials, according to the American Century Investments study. Sixty-five percent of millennials have demonstrated increased interest in SRI, compared to 55% of Gen Xers and 49% of Baby Boomers. Also, two out of five millennials plan to invest in an SRI fund within the next five years.

Is There a Return Tradeoff?

One of the main questions many people have about SRI is whether it’s possible to invest in a socially responsible way without potentially sacrificing investment returns on your retirement savings.

According to new research, the answer appears to be yes.

For example, one study found that SRI funds in existence for at least seven years had median returns that were equal to or higher than traditional funds 64% of the time. Also, more than a dozen SRI funds boast 4-star or 5-star Morningstar ratings.

In addition, a whitepaper focused on sustainable investing stated that there is “no financial trade-off in the returns of sustainable funds compared to traditional funds, and they demonstrate lower downside risk” (based on performance of 11,000 mutual funds from 2004-2018).

Potential ESG Criteria

Sustainable investors strive to achieve “strong financial performance, but also believe that these investments should be used to contribute to advancements in ESG practices.

The US SIF lists a wide range of ESG criteria used by sustainable investors, including:

Human rights
Avoidance of tobacco and other harmful products
Labor relations
Workplace safety
Pollution and toxins
Water use and conservation
Sustainable natural resources
Clean technology
Climate change and carbon

According to the American Century Investments study, “healthcare/disease prevention and cures” is the top social and environmental cause among SRI investors today.

Other important causes listed by SRI investors? Environment/sustainability, improved education, mitigating poverty, gender equality and alignment with religious principles.

Read More: Why This Millennial Opted Into SRI

How to Practice SRI

There are two main ways to practice socially responsible investing with your retirement savings. The first is to invest in companies that promote activities that align with your values and beliefs and support causes you’re passionate about. For example, you could use ESG criteria to positively screen for businesses to invest in based on their practices.

The second way to practice ESG is to use negative screening to avoid investing in companies that are involved in practices that you find objectionable from a moral or social standpoint or go against your beliefs. These might include companies in the tobacco, alcohol, gambling, firearms or adult entertainment industries, for example.

You can also practice ESG by participating in shareholder engagement and filing shareholder resolutions with publicly traded companies you own shares in.

Yet another strategy is to invest in businesses that direct capital to underserved communities in the U.S. or abroad. These might be businesses that make low-interest loans to entrepreneurs in emerging market nations or underdeveloped areas in the U.S., for example.

To find the right socially responsible investments for you, you can visit the US SIF webpage, which lists close to 200 SRI mutual funds and ETFs. These include equity large-cap, mid-cap and specialty funds; balanced funds; bond funds; and international global foreign funds. The page includes details on each fund including its size, type, performance history and expense ratio, as well as the ESG criteria considered.

Socially Responsible Personal Strategy

Personal Capital includes SRI as part of its holistic investment management offering. With the Socially Responsible Personal Strategy, you can invest your retirement savings in companies that are focused proactively managing environmental, social and corporate governance issues.

“We wanted to be able to meet this need [for a socially responsible offering],” said Personal Capital Director of Portfolio Implementation Brendan Erne. “We saw an opportunity to produce something truly unique.”

Personal Capital partnered with independent research firm Sustainalytics for the portfolio’s ESG scores. On average, companies selected have an overall ESG ranking in the 90th percentile relative to their domestic peer groups. “This is far higher than most other ESG funds and ETFs available in the market,” said Erne.

Personal Capital’s use of individual stocks for SRI allows for more precise target weights, as well as more granular opportunities for tax loss harvesting. Moreover, it means the portfolio remains fully customizable.

“If a client doesn’t like a specific company or industry, they can simply restrict it,” Erne said. “You can’t do this with a fund or ETF.”

Notably, Personal Capital’s Socially Responsible Personal Strategy comes with many of the same benefits as the core strategies.

“It’s still dynamic and data-driven, based on each individual’s unique financial situation and goals,” Erne said. “It simply does all this while also applying a socially responsible filter to the portfolio.”

Learn More About Investing in Your Future, For Good

Personal Capital compensates Don Sadler (“Author”) for providing the content contained in this blog post. Compensation not to exceed $500. Author is not a client of Personal Capital Advisors Corporation. The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Advisory services are offered for a fee by Personal Capital Advisors Corporation (“PCAC”), a registered investment adviser with the Securities and Exchange Commission. Registration does not imply a certain level of skill or training. PCAC is a wholly owned subsidiary of Personal Capital Corporation (“PCC”), an Empower company. PCC is a wholly owned subsidiary of Empower Holdings, LLC. © 2021 Personal Capital Corporation. All rights reserved. Third party links are provided solely as a convenience and do not imply an affiliation, endorsement or approval by Personal Capital of the contents on such third party websites. Certain sections of this blog may contain forward-looking statements that are based on our reasonable expectations, estimates, projections and assumptions. Past performance is not a guarantee of future return, nor is it indicative of future performance.

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