When it comes to investing, there’s no shortage of choices. Both traditional and alternative asset classes are home to a wide range of investments that offer different risk-and-return profiles. And increasingly, investors are thinking about how their portfolio fits into their overall financial plan beyond just ROI.
For example, many investors want to make sure the companies in their portfolio have transparent operations, support charitable causes, or whose managers have considerable experience in socially responsible investing.
So, what does it mean for an ETF to be socially responsible? This post explores some of the primary traits you should look for in a socially responsible ETF:
Transparency
It’s incredibly important that any ETF you invest in is transparent about its sustainability efforts. After all, the best sustainable investments won’t have that label unless they’re held up to rigorous standards. You should be wary if you can’t find information about how an ETF is sustainable on its website, its prospectus, or a third-party website.
When evaluating transparency, you can look for things such as:
- What criteria does the fund follow to determine if a company is sustainable?
- Which organisations does the fund’s manager donate to, and what sustainability initiatives does the fund support?
- Are the funds’ holdings regularly audited for sustainability?
- Does the fund’s website communicate trustworthiness?
- Is there a quality sustainability report that you can download?
Good Practices for Employees
One way to determine if an ETF is sustainable is to look at how the companies the fund invests in treat its employees. After all, if an ETF only cares about profits and not its holdings, it may not be a great choice for sustainable investors.
Are employees paid fairly? Can they take time off to care for a loved one or attend to other important matters? If an ETF doesn’t seem to care about how employees are treated, it’s likely that it may not care about its investors either.
Environmentally Conscious Investments
Investing in environmentally conscious ETFs is a great way to support environmentally friendly industries. Many of these ETFs focus on renewable energy sources, such as wind, solar, and water power.
While they can be more expensive than fossil fuel-based energy sources, they offer a number of advantages over the long term, including reduced reliance on fossil fuels and reduced CO2 emissions.
Good Track Record
Another way to determine whether an ETF is sustainable is to look at its track record. You need to ensure that the fund has been around for at least five years to check its performance during both good and bad economic times. The longer a company has been around, the better its track record will be for providing its investors with positive returns.
In Conclusion
It’s important to remember that no two socially responsible ETFs are the same. While some ETFs will meet all of the above criteria, others may only meet a few. This means that each investor will need to do their own research when choosing the best socially responsible ETF for their portfolio.
If you want to invest in sustainable funds but aren’t sure where to start, you can use this guide to help you determine whether any given ETF is a good choice for your portfolio.
