How to Shift to an ESG or a Socially Responsible Investing Portfolio

As an investor, you typically think of how investing in certain stocks will impact your portfolio. But that’s not the only way to view your investments: Another angle is how investing in various stocks can impact the world around you. Each investment you make puts money in a company or government entity, and how they use the money matters.

Whether you’re new to the stock market or have an established portfolio, you can align your investments with your values by investing with an ESG (environmental, social, and corporate governance) or an SRI (socially responsible investing) lens. Learn how to do so strategically.

What are SRI and ESG investing?

Though they have similarities, investing with a socially responsible or ESG focus isn’t exactly the same.

ESG: Involves evaluating stocks by environmental, social and corporate governance factors, along with traditional financial analysis. You might evaluate companies based on their climate change impact, how they respond to human rights issues or executives’ compensation. Several independent parties rank companies on various ESG standards.

SRI: Uses an ethical, values-based approach to screen stocks. With this tactic, you avoid investing in companies you consider morally or ethically questionable. For example, that could mean not investing in companies that produce certain types of products or ones that promote values you disagree with.

ESG investing takes a positive screening approach, meaning you add stocks to your portfolio based on whether they meet the criteria you look for in a company. On the other hand, SRI uses negative screening — you eliminate companies that do not align with your values.

Building Your Values-based Portfolio

There’s no one-size-fits-all approach to ESG or SRI since everyone values different things and the standards for what is considered ESG-friendly can vary. If you are interested in aligning your investments with your principles, you can go about it in a few different ways.

Shift your stock picks.

One of the benefits of DIY investing, which you can do through our Self-Directed Trading account, is having total control over what you invest in. To align the contents of your portfolio with what you believe in, start by outlining your personal parameters. These could be based off your ethical, religious, political, etc. beliefs. You might also use a reputable third-party resource, such as the Dow Jones Sustainability Index, FTSE4Good or Bloomberg ESG data, to identify top-rated ESG companies.

Then, research individual stocks or funds you are already invested in. If they don’t fit your standards, you might choose to start selling those securities and replacing them with others. Remember: You don’t have to overhaul your entire portfolio at once but aim to make gradual changes to remain on track with your financial goals.

Supplement your investments with an SRI Robo Portfolio.

If you have a retirement account through your employer, it’s possible you don’t have a lot of investment choices. But you can make your overall invested assets lean more socially responsible through a personal brokerage account, like a Robo Portfolio from Ally Invest. By opting for a Socially Responsible Robo Portfolio, our robo-advisor technology works to ensure your dollars are invested only in businesses with sustainability, energy efficiency or other environmentally-friendly initiatives.

Work with an advisor.

Depending on the size of your portfolio and how much you have in investable assets, you might decide you’d prefer some extra assistance in shifting your investments to align with an ESG or SRI approach. That’s when working with a professional can be beneficial. With an advisor, you can pinpoint what kind of companies you do (and do not) want to invest in based on a number of criteria, and they can help identify individual stocks, ETFs and mutual funds that fit. An advisor can also help you make large portfolio changes in a cost-efficient way so you don’t inadvertently trigger major capital gains tax charges or increase your ongoing costs by investing in funds with much higher expense ratios.

Make changes to make a difference.

ESG investing has become an increasingly popular approach as, more than ever, investors are conscious of and care about where their money is going and how it’s used. At the same time, banks and brokerages like Ally Invest are making it easier to build a portfolio that reflects you and your goals. Whether you’re passionate about promoting diverse C-suites, care about slowing the effects of climate change or believe in businesses that put sustainability first, your investments have the power to support and fund the causes you believe it.

We make it simple to connect your wallet with your values.

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