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.
Comment on this article
Comments
Marshall F. on August 24, 2021 at 8:13am
Don't go woke and start virtue signaling about how ethical ally is. I'm a long time customer but will leave if I start getting lectured about politics from my bank.
Corrina B. on August 24, 2021 at 6:13pm
Are these companies investing in communist countries such as China? Countries that do not allow free speech and murder ethnic minorities and imprison political dissidents.
Zss on August 24, 2021 at 8:47pm
It's not your role to preach social responsibility in investing. I'll handle that myself. You are to provide investment alternatives. Goodbye Ally.
Joe S. on August 26, 2021 at 4:12pm
How about we get back to basics and just start investing in American companies! Knock it off with all this stupid division! Theses stupid tactics are not good for the greatest Nation on Earth!
James C. on November 5, 2021 at 12:09pm
I reject ESG thoroughly.
Jim on December 6, 2021 at 11:34am
I was considering opening an investment account with Ally, but if Ally is going to embrace ESG idiocy I want nothing to do with it. In fact, I may close my Ally savings and checking accounts and move my assets to a more rational institution.
Ally on December 6, 2021 at 11:35am
Hi Jim, our team would be happy to discuss this further with you if you’ll give us a call at 1-855-880-2559 or chat with us online at ally.com.
Kevin on February 10, 2022 at 12:23pm
Ally, reject this ESG insanity. I have been well served by Ally in the past and have been a customer for a long time. However, if the progression towards using this horrible idea of ESG scores in banking, where it has no business being, I may have to move my finances elsewhere.
Ally on February 10, 2022 at 12:24pm
Hi Kevin, we hear your concern. Please give us a call at 1-855-880-2559, so we can discuss this further with you.
Arthur P. on February 10, 2022 at 4:12pm
Keep Politics Out Of Finance! ESG means only supporting far left corporations. I do not agree with the politics of leftwing social justice and climate change.
Jonathan F. on February 10, 2022 at 4:13pm
Support legislation to make ESG scores illegal. America does not need the Chinese communist social credit system.
Matt S. on March 14, 2022 at 4:31pm
I'm closing my Ally accounts and moving my money to a financial institution that has a backbone.
Ally on March 14, 2022 at 4:32pm
Hi, we hear your frustration. Please give us a call at 1-877-247-2559, so we can discuss this further with you.
Henri D. on March 28, 2022 at 12:48pm
Already transferred all my money out of Ally into my local credit union. Goodbye Ally!
Ally on March 28, 2022 at 12:49pm
Hi Henri, we don’t like hearing this. Please let us know if there’s anything we can do to assist.
Jane D. on May 8, 2022 at 9:25pm
Look like Ally Bank has woke policies. I was going to do a CD with Ally, but I will take less on a CD rate to go with a bank that is NOT Woke.