The Ultimate Guide to Socially Responsible Investing

The Ultimate Guide to Socially Responsible Investing

Seeking a healthy financial return and bringing about positive social change, long thought to be mutually exclusive, can be accomplished through socially responsible investing. But how do you do it? How do you vet companies to see if they actually promote environmental stewardship (and not just use empty jargon) while also provide strong returns? 

Scroll down to learn more about socially responsible investing. 

Why Fossil Fuel Companies Aren't a Type of Socially Responsible Investing

Some companies have a vested interest in the world getting worse. Oil companies top that list, although not for reasons you would expect.

As global investment moves away from fossil fuels and toward renewable energy (especially solar), oil companies are turning to plastic production as the cornerstone of their financial future. But as governments are cracking down on plastic garbage that clogs landfills and large segments of the Pacific Ocean, even this approach looks unsure. 

“Oil companies are saying, no problem, we’ll invest in petrochemicals,” said Paul Bjacek to Bloomberg. “But petrochemicals, after the circular economy happens to the maximum extent, is likely to be a low-growth market.”

Local bans on plastic products and stronger recycling programs could be driving this change. Whatever the reason, the proof is in the profit sheets. Exxon mobile reported in August 2019 that its second-quarter profit fell from $3.95 billion the previous year to $3.13 billion; total revenue fell six percent. 

Petrochemicals were supposed to be the hedge for oil companies to use against the rise of electric cars and increasing fuel efficiency in conventional cars. However, investment in new waste recovery methods looks to replace virgin plastic with recycled resins, replacing 20 percent in the short term, over 30 percent by 2030 and nearly 60 percent by 2050, resulting in a sharp drop in demand for petrochemicals.

Investing in the Sun 

Many consider climate change to be the defining existential threat to Earth in the 21st century. With emissions continuing to rise, the battle is being lost to prevent the increase of the global average temperature to below 2°C above pre-industrial levels. Rising above this level will trigger all sorts of cataclysmic environmental results. Fighting climate change will require the motivation of billions and investments of trillions of dollars.
But what if the need to move to clean energy is also one of the best investment opportunities available now? It turns out it is. Nearly three-fourths of all investors are interested in sustainable investments. 
According to the Principles for Responsible Investment, the global mobilization to fight climate change among corporations, investors, and governments will create incredible investment opportunities on clean energy in the push to transition to a low-carbon world.
Investors are getting in the game. They are involved in such efforts as Climate Action 100+, the largest corporate/investor engagement initiative to date, and The Investor Agenda, through which investors are showing how they will massively reduce their carbon footprint. This will be done through the support of sustainable agriculture and reducing deforestation, among many other efforts.
Morningstar, an investment research firm, discovered that 72% of the U.S. population is interested in investing in environmental, social, and governance funds. This is true among age cohorts: Millenials and Generation X were statistically identical in their level of interest.
“A lot of people care about sustainability,” said Ryan Murphy, head of decision sciences at Morningstar Investment Management and a co-author of the research. “This is not just a fringe preference. “The idea that this is of interest to a subgroup doesn’t really hold.” 
The interest in sustainable investment goes beyond enthusiasm. It's also back up by hard numbers. In 2018, renewable energy investment hit nearly $300 billion, far outstripping investment in fossil fuels. 

There was nearly $140 billion invested in solar in 2018, along with $134 billion in wind energy, according to a UN Global Status Report. 

"Investments in renewable energy in 2018 were three times higher than the amount invested in new coal and gas-fired generators,” said Inger Andersen, Executive Director of the UN Environment Programme.

Social Responsible Investing Strategies: An Overview

Investing isn't 100 percent about financial returns regardless of the ethics (or lack thereof) of the company being funded. More Investors are seeking out businesses, nonprofits, and funds for the purposes of generating a measurable, beneficial social or environmental impact alongside a financial return. This is called impact investing, and you can start doing it right now, whether supporting a massive investment fund or a crowdsourced alternative energy project (we have a specific one in mind at the bottom of this post). 

Impact investing has grown from an estimated $50 billion in 2009 to $500 billion today. While this figure only represents a slice of the $61 trillion that makes up the global equity market, impact investing has spread among such instruments as equity, debt, real assets, and loan guarantees. 

Socially Responsible Investing with Large Investment Funds

Analysts noted that private equity funds are undergoing a massive shift of funds from fossil fuel energy to solar, wind, and other renewable energy assets. Industry insiders say that fund sponsors are interested due to a convergence of numerous trends. 

First, the asset class has matured to the degree that the technology behind clean energy (in the form of wind turbines and solar panels) is a known quantity. Second, federal and state climate policies have mandated the decarbonization of energy at local, state, and national levels. Third, fund LPs are requiring increasing clean energy investments for the purpose of promoting sustainability initiatives. 

That's the 10,000-foot view, but let's get practical. How do you get down to impact investing? A good place to start is with an alternative energy ETF. In this way, you can diversity across several companies through purchasing alternative energy exchange-traded funds.

Here are five ETFS that Investopedia ranks the highest by reason of market cap, potential stock growth.  liquidity.

1. Invesco Solar ETF (TAN)

TAN follows the Mac Global Solar Energy Index, which tracks 23 stocksand keeps 90 percent of its investments in securities from the index.

2. Invesco WilderHill Clean Energy ETF (PBW)

PBW provides exposure to U.S. companies engaged in advacing cleaner energy and conservation. It follows the WilderHill Clean Energy Index and invests at least 90 percent of its assets in stocks from the index. 

3. First Trust Nasdaq Clean Edge Green Energy ETF (QCLN)

This ETF tracks the Nasdaq Clean Edge Green Energy Index, which includes 39 stocks in its portfolio.

4. VanEck Vectors Global Alternative Energy ETF (GEX)

This ETF tracks the Ardour Global Index; it focuses on companies in an area considered alternative energy. 

5. iShares Global Clean Energy ETF (ICLN)

The S&P Global Clean Energy Index is considered the benchmark of this ETF. It keeps a 90 percent concentration of assets from the index. The other 10 percent are futures, options, and swap contracts. 

Impact Investing with Crowdfunding

Socially Responsible Investing with Crowdfunding

Investing in large-scale portfolios aren't the only way to get involved with impact investing. Many online companies are now offering funding platforms for renewable energy projects and cleantech companies.

One of them is GridShare. You can browse offerings on the site and back projects through equity, debt, and donations.

The second is StartEngine. Established in 2016, the site facilitates investment in early-stage startup businesses, including renewable energy companies. It partners with small businesses, entrepreneurs, and others, enabling about 150 financings through the platform since its inception. It operates at a higher scale than Kickstarter or Indiegogo, allowing bigger businesses to get their liftoff.

An even better company to invest with impact investing is GoSun. You can now back it on StartEngine

Here's why GoSun is a great company to be a part of. GoSun literally started in an old garage and has now shipped over 35,000 solar products to over 60 countries. GoSun makes a variety of solar products including breakthrough solar ovens, which use vacuum insulation to bake, boil or fry a meal in only 20 minutes, using only sunlight. It has become the first consumer solar products manufacturer to break into mainstream markets centered around enjoying power, food and drink while outdoors. GoSun currently has relationships with major retailers including REI, ACE and Home Depot. 
After three years in business, GoSun is taking its innovative Solar Energy company to Start Engine, for equity crowdfunding raise. Last year, GoSun sold $1.6 million of solar products, and now they are and raising funds to ramp up all of their efforts. GoSun launched a campaign on October 16, 2019, and it has raised over $150,000 within the first five days.

As of this writing in December 2019, over a quarter-million dollars has been raised from investors who now have an equity stake in the company. 

With innovation at the core, in 2018 GoSun launched the first hybrid solar and electric oven through Kickstarter so customers can cook at night.  In 2019, the company launched a solar-powered cooler on Indiegogo, that eliminates ice, thus freeing up space, keeping contents from being soaked and smashed.

Back to blog