Many young investors are realizing that they can make a difference in the world with their investing dollars.

The way you can do this, generally speaking, is by putting your money into funds that are “socially responsible.” Those funds would either include companies doing some good in the world and/or avoid those engaging in activities that can be harmful, such as heavy pollution or tobacco and firearms production. 

Scrutinizing companies for their social responsibility is now a mainstream investing trend, and record amounts of cash are flowing into these funds.

Younger investors are especially attuned. Almost two-thirds of American millennials are highly interested — not just simply interested — in sustainable investing, according to a UBS Investor Watch study.

“Morally and ethically, I’ve been thinking what my giving strategy is,” said Jessica Byrne, 27, a software engineer based near Albany, New York, who has a personal finance blog. “What can my money do besides just making me more money?”

Investing for social justice

For years, so-called responsible investing has focused on how a company’s activities impact the physical world or how it treats its employees and handles diversity concerns, as well as other social issues.

Now, racial and social justice are becoming an ever more key way to think about investing. The Black Lives Matter movement has spurred greater interest in social justice investing, says Laura Oldanie, 49, a personal finance blogger in St. Petersburg, Florida.

Social justice investing can be a way to strategically use money to invest much-needed capital into businesses and communities of color.  I think the vote we make with our dollars could have more impact potentially than the vote we cast at the ballot box.Laura OldanieFOUNDER OF RICH AND RESILIENT LIVING BLOG

“Just to be clear, I’m not talking about donations to worthy non-profits and initiatives, but to [actual] investments that earn us a return on our money, however small or large,” she said.

A recent blog post includes a crowd-sourced guide showing which investments might be putting money into private prisons or financial institutions, among other companies, whose practices are harmful to people of color.

If this is an interest of yours, Oldanie recommends starting with social media to look for recommendations from people who share those interests. Be sure to do your own research on companies and investments.

“I think the vote we make with our dollars could have more impact potentially than the vote we cast at the ballot box,” Oldanie said.

An SRI playbook

This kind of investing goes under a couple of names and acronyms — ESG or SRI, or more broadly, impact or values investing. (Not value investing, though — that’s an entirely different strategy, and one that Warren Buffett embraces.)

Here’s a rundown of what all the terms mean.

• ESG stands for “environmental, social and governance” factors.

Environmental issues might be climate change policies, greenhouse emissions goals, carbon footprint and renewable energy, such as wind and solar.

Social factors look at an organization’s treatment of its employees: diversity, pay, benefits and workplace safety. Its stance on social justice is another consideration.

Corporate governance examines the board of directors and how the business is run. Executive compensation is a key topic.

• SRI used to mean “socially responsible investing” but some people say it stands for “sustainable, responsible and impact investing.”

As impact investing becomes more mainstream, the number of options is growing and there’s no need to think you’ll be sacrificing money for your ideals.

“Over time, ESG strategies achieve similar returns to traditional investments,” said Andrew Lee, head of sustainable and impact investing at UBS Global Wealth Management.

The S&P Dow Jones Indices launched its own ESG index based on the S&P 500 index. Major fund providers offer investments with a social or environmental conscience.

Vanguard and Fidelity have their own SRI or ESG lineups. Schwab offers socially conscious exchange-traded funds on its platform.

The post Millennials look to make a social impact with their investing dollar, study finds appeared first on CNBC News and is written by Jill Cornfield

Original source: CNBC News