When it comes to investing, we tend to primarily think about our ROI–return on investment. But now that we’re surrounded by groups supporting social causes (and Earth Day is coming up), it might be time to rethink your investment philosophy.
Yes, you might be able to earn more by investing in whatever is the best investment overall–but have you ever stopped to consider what kind of impact that company might be having on the environment?
For instance, big tobacco is a controversial one. Yes, you could very well get rich investing in tobacco companies, but how does that make you feel? For some, it’s no issue. For others, it is.
That’s why we’re outlining the best robo advisors that have a social component or focus their business on social impacts. This list will give you some ideas on how to put your money toward some type of greater cause.
What is Socially Responsible Investing (and How Does It Work)?
Socially responsible investing (SRI) is an investment that’s thought to be socially accountable on account of the work the organization conducts. Meaning, you’re investing in companies that are socially aware (i.e., they use clean energy or recycled materials).
Socially responsible investing works the same as every other common type of investment. However, socially responsible investing adds social responsibility and business ethics to the equation, rather than merely putting your cash into securities for organizational expansion.
Socially responsible investments can be made through a socially conscious exchange-traded fund or mutual fund, as well as directly into specific businesses with good social worth (though the former is easier and more common, and what we recommend).
Socially responsible investing follows ESG standards--environmental, social, and corporate governance. These standards help socially responsible investors determine which funds or individual companies to put money into. Including businesses that treat their workers and providers fairly, promote moral policies, and respect the environment.
Therefore, socially responsible investing involves staying away from investments in businesses that produce or market addictive substances (like tobacco, alcohol, or gambling) in favor of looking for firms who are engaged in things like ecological sustainability, social justice, and other energy/cleantech attempts.
Recently, "socially aware" investing has developed a widely-followed audience since there are tons of new funds and investment vehicles offered for SRI investors. Mutual funds and ETFs provide additional benefits because investors can gain exposure to numerous socially-conscious businesses across many market sectors using just one investment.
However, as an SRI investor, you must read attentively through fund prospectuses to find out the precise philosophies being used by the organization, together with the possible profitability of those investments.
And both don't necessarily need to go hand in hand.
Because an investment that prides itself as being socially responsible doesn’t indicate it’ll supply you with a good return on investment. And the guarantee of a tremendous return is FAR from a guarantee that the work the organization involved is socially conscious.
As a socially responsible investor, you should still evaluate the fiscal outlook of any investment while attempting to judge its societal worth.
Socially responsible investing will also follow both societal and political tendencies. This means they have been committed to things such as anti-war attempts, women's rights, civil rights, and more. Now, the attention of SRI investors has changed mainly to sustainable alternatives to 21st-century challenges.
Best Socially Responsible Investing Robo Advisors
Betterment is known for being one of the best overall robo advisors on the market. But they also have a Socially Responsible Investing (SRI) portfolio.
What’s nice about Betterment’s SRI portfolio is that they considered performance heavily when choosing funds. Many times what you see is a loss in performance in exchange for a greener set of investments. But Betterment did a hefty amount of research to replace funds from their core strategy portfolio to be more Socially Responsible, without deviating from their overall philosophy:
As we developed Betterment SRI, we analyzed all low-cost SRI ETFs available, searching for products that could replace components of our core strategy without disrupting the diversification or cost of the overall portfolio.
The SRI portfolio mixes Large Cap US stocks with Emerging Market stocks. They chose not to utilize other asset classes such as mid or small cap because there arent any SRI-friendly funds in those categories yet.
If you’re interested in reading about how they developed their SRI portfolio, Betterment actually put together an entire whitepaper on it. Otherwise, head over to Betterment to sign up for an account and simply choose the SRI portfolio as your investment choice and you’ll be good to go.
Read our full Betterment Review.
Ally Invest is currently at the top of our list for socially-responsible investing. With their new Robo Portfolios, you can get a robo-advisor for free - that’s right - no advisory fee with Ally Invest Robo Portfolios.
And all you need is $100 to start investing--which is a heck of a deal. You’ll also have access to email, chat, or phone support 7 days a week from 7 am to 10 pm Eastern Time.
While the money you invest doesn’t have advisory fees, the money that isn’t invested earns 1.60% APY in an interest-earning account, so your money doesn’t ever sit there being unused.
All four core portfolios are human-assembled and managed and monitored daily to determine if rebalancing needs to occur. But most importantly for this article is the socially responsible investing (SRI) fund.
Ally Invest has three categories for its SRI fund:
- ESG Funds -Put your money to good use with ETFs that consider important environmental, social and governance (ESG) attributes.
- Thematic Funds - If you have a particular passion for the environment or a special place in your heart for diversity or if you prefer to invest in companies that are governed well, thematic funds allow you to focus on the issues that matter the most to you.
- Impact Funds -Created to make a mark on the world, these funds aim for maximum change through maximum profits and are a great choice for investors who want to make their mark economically, socially and environmentally.
Here are the funds you’ll find in each category:
- ESGU iShares ESG MSCI USA ETF
- ESGD iShares ESG MSCI EAGE ETF
- SUSB iShares ESG 1-5 Year USD Corporate Bond ETF
- SUSA iShares MSCI USA ESG Select ETF
- ESML iShares ESG MSCI USA Small-Cap ETF
- ESGE iShares ESG MSCI EM ETF
- SUSC iShares ESG USD Corporate Bond ETF
- DSI iShares MSCI KLD 400 Social ETF
- EAGG iShares ESG U.S. Aggregate Bond ETF
- CRBN iShares MSCI ACWI Low Carbon Target ETF
- ICLN iShares Global Clean Energy ETF
- SDGiShares MSCI Global Impact ETF
- BGRNiShares Global Green Bond ETF
We’ve written wonderful things about Ally Invest in our full review, and continue to be impressed with their Robo Portfolios investment solution.
Motif was founded by Hardeep Walia with the focus of giving everyday investors access to cutting edge investment products. Motif uses and focuses on thematic investing, which focuses on long-term trends that are likely to drive disproportionate earnings growth in the future. The company uses Artificial Intelligence and advanced algorithms to pick and allocate stocks for you.
Motif offers a few different thematic portfolios--one of them being the Impact Portfolio. The Impact Portfolio has stocks in five different asset classes that focus on three major areas:
- Sustainable Planet - companies that reduce their carbon footprint
- Fair Labor - companies that promote fair labor, job security, and safe working conditions
- Good Corporate Governance - companies with ethical track records
Motifs pricing is great, too. With a $1,000 minimum investment, you’ll pay a flat 0.25% annual fee on your assets.
Their platform is slick and innovative, making it easy to manage your assets on your desktop or mobile phone. You can automate this process with dollar-cost-averaging and rebalancing as well as trade stocks more intuitively by purchasing in either dollars or shares using our patented technology.
You can open an individual or joint taxable account, a trust, or a Traditional, Roth, or Rollover IRA. You’ll also rest assured knowing that every Motif account is insured up to $500,000, including a maximum of $250,000 for cash claims and each Motif customer is protected up to $1.9 million through excess SIPC insurance provided by Lloyd’s of London.
Read our full Motif Investing Review.
Sustainfolio is part of an independent investment advisory firm called Sustainvest Asset Management, which was founded in 2013. The firm is 100% focused on sustainable investing. Whereas other robo advisors might see sustainable investing as a niche part of their business model, Sustainfolio has elected to make it their entire business model - it’s all they do.
Sustainfolio is a newer player to the robo advisor game. Their sole focus is sustainable investing, meaning they focus on stocks that are simple and ethical. Every portfolio Sustainfolio invests in is screened for ESG criteria and will be modified by your own personal risk tolerance.
Sustainfolio requires a $5,000 minimum investment, and their fees are 0.50% per year. Currently, you can open up any of the following account types:
- IRA & 401(k) Rollover
- 403(b) Rollover
Another great feature about Sustainfolio is that they donate 1% of their annual revenues to environmentally focused non-profits. If you’re looking to support a smaller, startup robo advisor and don’t mind paying a little more to get a laser-focused sustainable investment portfolio, you might want to check out Sustainfolio.
Related: Best Robo Advisors - Find out which one matches your investment needs.
Polaris Portfolios was co-founded by Evan Kulak, Michael McDermott, and Grant White to provide a better way for individuals and their families to receive fiduciary-driven investment advice. Polaris focuses on wealth management overall, but they do have a special ESG Investing portfolio that features companies that have positive environmental, social, and corporate governance characteristics.
Polaris Portfolios focuses on six key investment principles that are embedded in the way they work:
- Dynamic Diversification - your portfolio is spread across six core asset classes
- Risk Management - Polaris uses techniques to minimize the negative impacts of down markets
- Low Fees - there are no trade fees, transaction fees, load fees, or rebalancing fees
- Smart Rebalancing - their algorithms will buy low and sell high to maintain risk-adjusted returns on your behalf
- Tax Optimization - the software used by Polaris will minimize your tax obligations
- Fiduciary Standard - the company abides strictly by the Fiduciary Standard
Polaris Portfolios charges a bit more than some of the others on this list, coming in at a flat 0.75% annual fee. You can open a general taxable account, but also a variety of IRAs. The minimum investment amount is $500, so if you want to get started with a low cost of entry, Polaris might be a fit.
Earthfolio was actually the first robo advisor dedicated entirely to sustainable investing, and features world-class funds, personal asset allocation, and ongoing portfolio monitoring, all at a fraction of the typical investment and cost. Their process is simple:
- They’ll ask about your goals - this includes risk tolerance, age, and what you’re investing for
- They provide you with a recommended portfolio - the portfolio will allow you to make the best decision possible, estimating how your money will perform over the next 15 years
- Open your account - in just minutes you can open an account and get started
EarthFolio allows you to open a number of different account types:
- IRA Rollover
- 401(k) Rollover & 403(b) Rollover
The downside to this sustainable investing-focused robo advisor is the barrier to entry. You currently need $25,000 to open an EarthFolio account. Once you’re in, pricing is reasonable at 0.50% per year.
This is another smaller robo advisor that focuses on a very specific niche. If you want to support a smaller firm and what they stand for, EarthFolio is a great option.
OpenInvest was founded in 2015 by Conor Murray and Phil Wei. Murray and Wei both had strong investment backgrounds, working for Bridgewater Associates, and later teamed up with Josh Levin - who at the time was a finance expert from the World Wildlife Fund. They got financial backing and have since launched their robo advisor platform that focuses exclusively on socially responsible investing.
They have a number of causes they seek to invest in, including:
- Investing in healthy hearts - organizations focused on reducing heart disease
- Fighting dark money - organizations that fight back on lobbyists and politicians who pump money toward others to fund their own agendas
- Fighting CO2 pollution - organizations that fight against CO2 and other types of pollution
- Defunding DAPL - defunding one of the largest oil pipelines that threatens indigenous land--read more here
- Fighting deforestation - fight against companies that drive deforestation
- Fighting fossil fuels - organizations fighting against the production and use of fossil fuels
- Divesting gun violence - organizations that fight gun violence
- Pro-LGBTQ - companies that are and drive support for LGBTQ
- Divesting from the Prison Industrial Complex - PIC exploits people who are incarcerated--read more here
- Support refugees - organizations supporting refugees
- Ethical supply chains - fight alongside companies that combat against things like human trafficking and forced labor
- Divesting from big tobacco - invest in organizations that seek to divest from big tobacco companies
- Stand up against Trump - support companies who focus on standing up against Donald Trump
- Women in the workplace - companies that focus on promoting women in the workplace
Whew, what a list.
If you’re someone who agrees with these principles, I can’t say there’s another robo advisor out there that focuses this heavily on these causes.
OpenInvest doesn’t have terrible pricing, either. It’s 0.50% per year, and you can open an account with as little as $100.
Who is Socially Responsible Investing For?
This one is simple. SRI is for those who don’t want to support organizations that don’t follow ESG standards. Where this becomes tricky is when you start to think about the investment side–not just the socially-aware side (as I mentioned above).
Since you’re investing money, there’s a chance you’ll lose that money–like any other investment. So to be a true SRI investor you really have to focus on finding companies that you care about because they care about being socially-conscious. That may even come at the cost of lower returns.
In my opinion, you’re either a socially responsible investor or you’re not. If you take a blended approach to balance your portfolio with some socially-conscious companies, that’s great. But it doesn’t make you a socially responsible investor. That’s why this philosophy takes on so much scrutiny. It’s strict and may not produce the best returns. But SRI investors care first about the ESG standards, and second about returns.
Pros and Cons
You feel good about your investment decisions – By following ESG standards and investing in companies that do the same, you can feel good about your investments and know that your cash is ultimately supporting important social causes in one way or another.
You’re contributing to major social causes – In addition to feeling good about it, your money is actually invested in companies that support major social causes. So you can rest assured that your contribution is making the world a better place.
You’re pushing other companies to think differently – SRI has made waves in recent years as more and more people have stood up to talk about things like social injustice and climate change. The more people talk about these things, and the more people invest money in supporting these causes, the more companies will have to adapt and change. This will take a while, but we’ve already seen many executives start to become more socially conscious even though their organizations don’t fully comply with ESG.
Hard to decipher true SRI from not – Just because a company or fund claims they follow ESG doesn’t mean they actually do. This creates work for you to dig through the prospectus and really understand the companies you’re investing in to make sure they’re actually socially responsible.
You may sacrifice returns – While this strategy may seem noble, note that you may forego higher returns than you would by investing in a non-SRI company or fund since you’re dramatically limiting your scope of investment options.
Is socially responsible investing profitable?
According to a study done by Morgan Stanley, investing in businesses that are socially responsible is more profitable than investing in businesses that are conventional.
What are the best socially responsible mutual funds?
Some of the best socially responsible mutual funds include SDRP S&P 500 Fossil Fuel Reserve (SPYX), Eventide Gilead Fund (ETGLX), and TIAA-CREF Social Choice Bond Fund (TSBIX).
What are the origins of socially responsible investing?
The sources of socially responsible investing aren’t totally linear, but one answer may lie in a return into the Religious Society of Friends (Quakers). The Quaker Philadelphia Annual Meeting banned members from engaging in the slave trade -- selling or purchasing people. Some think that this was the start of more socially responsible investing.
Does Fidelity have socially responsible funds?
Yes. Fidelity Investments recently announced it has established two sustainability-focused index funds: the Fidelity U.S. Sustainability Index Fund and the Fidelity International Sustainability Index Fund.
As you can see, there are quite a few robo advisors that have portfolios that focus on socially responsible investing or focus their business entirely on causes that support SRI. If you’re someone who wants to support an impact on the world, you can’t go wrong with any of these options.