What Is Socially Responsible Investing? A Simple Guide to SRI

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You’ve got money to invest, but you’re not sure what to do with it. Do you go with the latest stock tips from self-proclaimed experts? Or just pick a fund at random and hope for the best?

Instead of guessing, more investors today are turning to socially responsible investing (SRI) — a way to grow your money while supporting causes you care about. It’s investing with purpose.

Socially responsible investing means selecting investments not only based on performance, but also on a company’s impact on the world. That might include environmental efforts, fair labor practices or ethical governance.

In this guide, we’ll walk you through what socially responsible investing is, how it works, why it matters and how to get started.

How Does Socially Responsible Investing Work?

There are two main approaches to socially responsible investing:

1. Positive Screening

You choose to invest in companies doing good, like those focused on renewable energy, affordable housing or ethical leadership.

2. Negative Screening

You avoid companies that conflict with your values, like those in fossil fuels, tobacco or industries known for poor worker treatment.

As Professor Robert Johnson from Creighton University explains, “The positive approach…is when investors buy securities of firms they perceive are helping achieve social good. The flip side is declining to invest in companies one perceives as doing social harm.”

Many SRI investors also use ESG ratings, which measure companies based on three factors:

• Environmental (e.g., emissions, waste management)
• Social (e.g., diversity, labor practices)
• Governance (e.g., leadership ethics, shareholder rights)

However, keep in mind that not all ESG ratings are consistent and what is socially responsible to you might not align with someone else’s scorecard.

Types of Socially Responsible Investments

SRI can be broad or focused. Some investors handpick stocks, while others invest in ESG mutual funds or ETFs.

Here are some categories you can target:

• Environmental: Companies reducing emissions, investing in solar/wind or supporting reforestation.
• Social: Businesses providing fair wages, affordable healthcare or inclusive hiring.
• Governance: Firms with transparent leadership, strong data protection and ethical decision-making.

U.S. sustainable investment funds totaled $313 billion in assets by the end of 2023 — a sharp rise from $236 billion the year before.

Pros and Cons of Socially Responsible Investing

Pros

• Aligns your money with your personal values
• Can reduce exposure to scandal-prone companies
• May offer competitive long-term returns
• Gives investors personal satisfaction and motivation to save

About 70% of sustainable funds outperformed traditional funds over a three-year period, so a safer investment strategy often pays dividends.

Cons

• May require more research to align with your goals
• Limits your investing universe
• Harder to measure the actual impact

Even with extra effort, many investors feel it’s worth it — because they’re supporting causes that matter to them.

How To Get Started With Socially Responsible Investing

You don’t need to be a rich professional investor to start investing responsibly. Here’s how:

1. Clarify your values: What matters most to you? Clean energy? Fair labor? Diversity?
2. Explore SRI funds or ETFs: These pre-built portfolios often come with ESG filters.
3. Use ESG tools: Look up ratings from Morningstar, MSCI or your broker.
4. Start small: Test the waters with a portion of your portfolio.
5. Diversify: Even with SRI, don’t put all your money in one basket.

Only 27% of Americans can answer basic financial literacy questions, according to FINRA. Starting with values-based investing can make the learning process more engaging.

Common Misconceptions About Socially Responsible Investing (SRI)

“SRI Means Lower Returns”

Reality:Many SRI funds match or outperform traditional funds. You don’t have to sacrifice returns to align your investments with your values.

“It’s Only for Environmentalists”

Reality:SRI goes beyond green investing. It includes support for:

• Civil rights and social justice
• Ethical leadership and transparency
• Fair labor practices
• Tech companies with responsible data policies

“It’s Too Complicated”

Reality:Thanks to ESG tools, robo-advisors, and SRI ETFs, getting started is easier than ever. You don’t have to be perfect — just pick a starting point and grow from there.

Real-World Scenario

Let’s say you care about reducing plastic waste. You skip companies that rely on single-use packaging and invest instead in a sustainable materials ETF. That way, your money supports your values and still has growth potential.

Final Take to GO: Should You Try Socially Responsible Investing?

If you want to grow your wealth while doing some good, socially responsible investing is worth considering. It helps you:

• Feel more connected to your money
• Support companies that reflect your values
• Stay engaged in long-term financial goals

Next steps: Browse SRI ETFs, check ESG scores, and build a strategy that works for both your wallet and your conscience.

Data is accurate as of July 10, 2025, and is subject to change.

Editorial Note: This content is not provided by any entity covered in this article. Any opinions, analyses, reviews, ratings or recommendations expressed in this article are those of the author alone and have not been reviewed, approved or otherwise endorsed by any entity named in this article.

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