Many of us are asking ourselves: do I have the power to make a difference in this world? Well, the answer is yes, and it’s not simply through volunteering, recycling, or reducing our carbon footprint (although these are great ways to create positive impact).

You can actually drive some of the greatest change with your investing choices. This is known as responsible investing (RI), and it’s shown to be a powerful way to grow your money while effecting genuine change. Let’s take a look at how it works!

What is responsible investing and how does it work?

Responsible investing is no different from traditional investing in many ways. Its goal is to create strong portfolio growth, and it looks at all the traditional financial criteria when evaluating investments (balance sheets, revenue, expenses etc.). However, it takes this evaluation a step further, incorporating what’s known as environmental, social and governance (ESG) factors into the decision-making process:

The result is what many consider a more informed, three-dimensional investment decision, taking into account the real-world risks and impact a company can have as well as their financial position.

For example, let’s say a retail brand has a factory with poor working conditions and workplace safety. Their financial statements may not reflect these issues. But they can have a significant impact on the value of the investment should a major accident happen, shutting down production, damaging brand reputation and opening the company up to costly lawsuits. By incorporating ESG criteria into the selection, risks of this kind are caught in advance, protecting your portfolio while also encouraging change.

How does responsible investing drive change?

Responsible investing isn’t just about screening out stocks from controversial industries such as weapons manufacturing or investing based on a theme like carbon reduction. Coming together with other RI investors in a fund creates a powerful, collective voice that cannot be ignored, allowing you to:

1. Financially support progress

Companies pay attention to factors that boost or reduce their bottom line. By choosing responsible investing, you (and your fellow RI investors) let them know that fair, sustainable business practices are now crucial to gaining support, influencing their decisions and direction. On top of which, you help companies that already match your values to sustain their growth.

2. Have a voice at the table

Shareholders have financial clout, which means companies listen to them. As a result, when you invest in an RI fund, your provider will be able to engage the company’s leadership on your behalf, using emails, phone calls and meetings to highlight ESG issues and help them improve.

3. Vote for change

Your power goes beyond talking. Thanks to your investment, your RI provider will be able to vote at shareholder meetings for you, supporting proposals that make ESG improvements and helping to block those that don’t. What’s more, they’ll be able to put forward other ESG shareholder resolutions that drive further change.

4. Influence national policy

It’s not just corporate strategy and direction you can influence. With the authority that responsible investors’ collective voice brings, RI providers can push governments and regulators for policy changes that drive greater industry adoption of ESG practices.

Investing responsibly doesn’t come at a discount to portfolio performance. In fact, because it provides a deeper, more nuanced view of your investment options, it can protect your portfolio from risks that traditional investment analysis may miss – all while helping to empower the changes you want to see in the world.

Sound like something you want to explore? Book a chat with one of our experts. They’ll help you figure out whether responsible investments are the right fit for your portfolio.