How to Become a Socially Responsible Investor

Tompkins Financial Advisors

Are you concerned about climate change, livable wages, or community reinvestment? You may then want to focus your investments on companies or investments that promote the social issues you feel strongly about while also furthering your own financial needs, according to Tara Masters, chief fiduciary officer and advisor with Tompkins Financial Advisors.

Socially responsible investing became popular in the 1970s, when controversial political issues such as the Vietnam War and apartheid in South Africa led investors to withdraw their money from companies supporting policies that didn’t match their personal beliefs. Over the past 40 years, a number of investment products have been created to help people to follow a socially responsible investment strategy.

There are several ways to integrate socially responsible investing into your portfolio, says Masters. Here are the four most common approaches:

Screening potential investments

The most commonly used strategy of socially responsible investing is to evaluate investments not only on their finances but also on their social, environmental, and corporate governance practices. Your screening process may eliminate companies whose products or actions are considered contrary to the public good. For example, some investors may steer away from companies involved with alcohol, tobacco, gambling, or defense, or those that contribute to environmental pollution or have interests in countries considered to have repressive governments.

The idea of imposing a negative screen on companies is not the only approach. Investors can also use a positive screening process to identify companies whose practices further particular social causes, such as developing green technology or renewable energy.

Using shareholder activism

Another strategy is to join other shareholders to pressure corporations to adopt socially responsible practices. Shareholders can file resolutions on issues such as corporate governance, climate change, environmental impact, political contributions, or labor practices. This type of activism proliferated when the Securities and Exchange Commission adopted the so-called “say on pay” rule as a result of the Dodd-Frank financial reforms. The rule requires companies over a certain size to allow shareholders to vote on executive pay at least once every three years. While the vote is nonbinding, it can give investors a stronger platform to advocate for other interests.

Community investing

Investors may also choose to direct their money to communities and projects that have traditionally had trouble obtaining financing, such as nonprofit organizations. This strategy involves investing in organizations that help underserved populations with challenges including gaining access to affordable housing, finding employment, and receiving health care. In addition to helping individuals, community investing also supports small businesses that may operate in geographic areas mainstream financial institutions view as too risky.

Impact investing

A newer strategy focuses on measuring and managing performance in terms of social benefit as well as financial returns. What is known as “impact investing” is focused on a goal of achieving social good, but doing so in a way that maximizes efficient use of resources and incorporates business practices such as benchmarking to compare returns and monitor how effectively an investment meets its goals. Impact investments are frequently made directly in a company or organization, and are more similar to venture capital and private equity than investing in traditional assets such as stocks or bonds.

How to target your investing

If you are interested in socially responsible investing, you may question whether to direct your money broadly or focus on a specific social issue. Concentrating on a particular issue could leave you exposed to the risks of a single industry or company, while greater diversification may reduce the impact you want your money to have. Although diversification and asset allocation can’t guarantee a profit or eliminate the potential for loss, these strategies can help you manage the amount of risk you may face from a specific investment.

As you develop a socially responsible investment plan, don’t lose sight of the fact that you need to evaluate how your investment performs as a stock. If you’re considering a small company stock that is aligned with your area of interest, keep in mind that smaller companies can be volatile and that larger companies that have made significant contributions to your chosen issue might be a wiser choice. If you don’t have the time to do the detailed research on the companies you’re considering investing in, you should work with a financial advisor who has access to the information you need to determine how to make socially responsible investments.


Some of this material was prepared by Forefield/Broadridge for Tompkins Financial Advisors. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

The return on socially responsible investments may be lower than if the adviser made decisions based solely on investment considerations.

We suggest that you discuss your specific situation with your financial advisor prior to investing.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

Investing involves risk including loss of principal. No strategy assures success or protects against loss.

Investment Services provided through Tompkins Wealth Advisors. Trust and Estate Services provided through Tompkins Trust Company. Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates. LPL Financial is a separate entity from Tompkins Financial Advisors. The investment products sold through LPL Financial are not insured Tompkins Trust Company deposits and are not FDIC insured. These products are not obligations of Tompkins Trust Company and are not endorsed, recommended or guaranteed by Tompkins Trust Company or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible. Tompkins Financial Corporation, Tompkins Trust Company and Tompkins Wealth Advisors are not registered broker/dealers and are not affiliated with LPL Financial.

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Kim Bellavia, VP Marketing

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Company Name: Tompkins Financial Advisors
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