Socially Responsible Investing [How to Get Started]
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 investing, starting today. ▼
In this article, you will learn:
✅ What is socially responsible investing (SRI) and the issues it focuses on which include the environment, social justice and corporate governance (ESG).
✅ The top socially responsible investing companies and funds that are high on investors' watchlists and could be set for a huge influx of capital over the coming years.
✅ The socially responsible investing performance over the past several years that cannot be ignored and shows the huge transition taking place right now in the industry.
✅ And much, much more!
Socially responsible investing definition
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.
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 the performance of SRI practices is quite interesting.
Some studies suggest that companies which 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 which 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, sustainable mutual funds and ETFs brought in $40.5 billion in new assets which is a 41% year on year increase.
Source: Admiral Markets MetaTrader 5, GSG, Weekly - Data range: 23 Sep 2012 to 3 Nov 2020, performed on 3 Nov 2020 at 8:09 am GMT. Please note: Past performance is not a reliable indicator of future results.
The above price chart is of the iShares Dow Jones Global Sustainability Screened UCITS ETF, available to invest in through the Admiral Markets Invest.MT5 account. The most recent decline on the chart was during the coronavirus pandemic of 2020 which battered global stock markets.
While the fund dropped around 26% during this crash, the broader S&P 500 stock market index dropped significantly more at around 35%. Even the Nasdaq 100 stock market index - a measure of the largest 100 technology shares on the Nasdaq exchange - dropped more than 30% during this time.
It's unsurprising why there are record inflows to sustainable funds which have reached a record high, as shown below from the MorningStar research:
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, SRI 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 Admiral Markets. This will allow you to follow through some of the examples for 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!
The top socially responsible investing companies
Whether you are interested in SRI 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 which investors have taken note of. Let's take a look at some of them!
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, that will power the company's entire operation in the United States by 2020.
Source: Admiral Markets MetaTrader 5, NVO, Monthly - Data range: 1 Jul 1990 to 3 Nov 2020, performed on 3 Nov 2020 at 9:09 am GMT. Please note: Past performance is not a reliable indicator of future results.
In the above monthly price chart of Novo Nordisk's share price, it is clear to see the long-term uptrend since 1990. The company's most significant share price decline was during the years 2015 - 2016 where the company received pricing pressure from the United States which counted for roughly half of its revenues at that time. The 50-period (red), 100-period (green) and 200-period (black) exponential moving averages all continue to move higher, confirming the long-term uptrend.
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.
Source: Admiral Markets MetaTrader 5, MSFT, Weekly - Data range: 17 Nov 2013 to 3 Nov 2020, performed on 3 Nov 2020 at 10:09 am GMT. Please note: Past performance is not a reliable indicator of future results.
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.
Source: Admiral Markets MetaTrader 5, SBUX, Weekly - Data range: 10 Dec 2017 to 3 Nov 2020, performed on 3 Nov 2020 at 11:09 am GMT. Please note: Past performance is not a reliable indicator of future results.
In the weekly price chart above, it is clear to see that Starbucks' share price has had a rocky ride in recent years. Navigating these types of market conditions is essential to the longevity of an investor. Fortunately, Admiral Markets does provide a range of advanced trading tools to help you with your investing decisions.
Did you know that you can access actionable trading and investing ideas on thousands of financial market instruments covering a wide range of asset classes from the Admiral Markets Supreme Edition platform? This upgrade is completely FREE and provides you with unparalleled tools to aid in your decision making.
For example, after searching for Starbucks in the Technical Insight Lookup indicator from the Admiral Markets Supreme Edition platform, it provides technical events for short-term, intermediate-term and long-term trading and investing opportunities, as shown below:
A screenshot of the Admiral Markets MetaTrader 5 Supreme Edition platform, searching for Starbucks in the Technical Insight Lookup indicator.
To upgrade your platform for FREE today, 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 top socially responsible investing 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 which 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, as shown below:
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 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!
Source: Admiral Markets MetaTrader 5, #SUSA, Monthly - Data range: 1 Oct 2005 to 5 Nov 2020, performed on 5 Nov 2020 at 11:09 am GMT. Please note: Past performance is not a reliable indicator of future results.
In the long-term, monthly price chart of the iShares MSCI USA ESG Select ETF it is clear to see the long-term uptrend that has prevailed with both rising 50-period and 100-period exponential moving averages. The fast recovery from the coronavirus pandemic sell-off in 2020, also highlights the attention socially responsible investing mutual funds are receiving.
When answering the question 'why is socially responsible investing important?' the answer is not merely due to the consciousness of the individual but the fact an important transition is taking place in the investing world and investors cannot afford to be left behind.
How to start socially responsible investing
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 Admiral Markets! 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 Admiral Markets with a trading ticket open on the chart.
Why start socially responsible investing with Admiral Markets?
✔️ 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.
✔️ Supercharge your trading and investing platform completely FREE by upgrading to the Supreme Edition for actionable trading ideas on thousands of different stocks and other asset classes.
✔️ Open a Trade.MT5 trading account to trade via Contracts for Difference (CFDs), allowing you to go long and short a market and potentially profit from rising and falling markets.
✔️ Manage all of your accounts, deposits and withdrawals, while accessing live customer support, all from one place in the Admiral Markets Trader's Room online!
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!
Get started today by clicking on the banner below:
About Admiral Markets
Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!
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.