If you’re in the fortunate position of being able to invest your savings in stocks or other securities, then you’ll want to do your research first. There are many different companies listed on the stock market that specialize in everything from pharmaceuticals to oil and gas exploration.
But what if you want to do something different?
What if you want to only invest in companies that maintain high standards of ethics and sustainability? What is a sustainable portfolio and how can I build one?
What Is A Sustainable Portfolio
An ethical portfolio is one that only invests in companies with a positive impact on society and the environment.
But keeping an ethical, impact-positive portfolio is a balancing act. From fair trade and non-GMO products to investments and social enterprises, there are plenty of ways to put your money where your values are.
Investing ethically is not only a smart move for your future financial security but an important one as well. When you choose companies with strong ethical standards, you can sleep at night knowing that your hard-earned money is going towards something positive.
This article explains some factors that you will need to keep an eye out for when looking for companies to invest in.
1. Are They Transparent
If a company is serious about being socially responsible, they will be transparent with their operations and supply chains. Consumers have a right to know where the products they are buying come from, what they’re made of, and who created them.
Well-known brands are notorious for outsourcing their manufacturing to countries with lower safety and environmental standards. But ethical companies are upfront about their supply chain, allowing you to make an informed decision about the products you’re buying.
You can also look at a company’s website to see if they’re transparent about their commitments to social and environmental responsibility. Some companies even have a sustainability report detailing their efforts to protect the environment and create a more socially responsible business model.
2. What Sustainable Practices Do They Observe
You can’t just take a company’s word for it when they say they’re sustainable. You have to do your own research on the matter by reading articles by experts in the field and visiting websites like Greenpeace that track companies.
Evaluate how each company’s products or services are impacting the environment. Look for companies that are using renewable energy, running on clean water, and making an effort to cut down on waste.
This is a good indication that the company is serious about sustainability and will be around for a long time.
3. Check Their Financials
When it comes to determining a company’s financial health, a healthy balance sheet is a must. We’re not just talking about a company’s current assets versus liabilities, but also their financial history. That means researching a company’s financial reports and audits to discover whether they’ve been fiscally responsible in the past.
So, if you can understand the financial statements of a company, then you’re well on your way to deciding if they’re a good investment choice. You can find financial statements for public companies on the Securities and Exchange Commission website.
If you’re looking at a company that is privately held (not listed on the stock exchange), you may have to contact them directly to get their financial statements. If you’re investing through an index fund, make sure the fund is tracking an accounting method that will allow you to view the financial reports.
4. Check The Better Business Bureau
Before you invest in a company, you may want to check its rating with the Better Business Bureau.
The Better Business Bureau (BBB) is a non-profit organization that researches and rates companies according to their customer satisfaction. The BBB rates businesses on a scale of A+ to F and provides information about consumer complaints and business closures.
An A+ rating is an excellent indicator that a company is trustworthy, financially stable and worth investing in. A rating below C, however, suggests that the company has been the subject of multiple complaints.
You can search for a company’s rating on the BBB website or by downloading the free BBB app.
5. Are They Compliant with the Law
When researching companies, it’s important to pay attention to government compliance. Are they abiding by the laws in the country where they’re based? Do they have any pending lawsuits or frequent infractions with the federal government?
If a company is breaking the law, it’s likely they’re also breaking their promises to you as a consumer. When it comes to corporate taxes, for example, companies are required to pay a percentage of their annual earnings. If you notice a company paying a much smaller percentage than the average company, it may be because they’re avoiding paying what they owe.
All of this information can be found online, and it’s extremely important when it comes to choosing a good investment option. Naturally, you’ll want to steer clear if a company is in violation of any laws.
6. What Reputation Do They Have
A company’s reputation is about more than just meeting their customers’ expectations. It’s often based on how customers feel about them and what their peers think about them.
One way to determine a company’s reputation is to Google their name along with the word “reviews.” This will pull up any recent reviews left on a company’s page. You can also search for a company’s name along with the word “complaints” to see if the Federal Trade Commission has received any complaints about the company.
Avoid investing in companies that have a bad reputation since not only are they a much bigger risk to your portfolio, they can also dent your reputation as an investor, and ultimately, other investments in your portfolio.
7. Check Employee Retention Rates
One more way to determine a company’s social responsibility is by looking at their turnover rate.
You can find employee retention rates for companies of all sizes on their websites or on sites like Glassdoor. You can also ask employees who have worked for the company in the past about their experience.
If a company has a low retention rate, it’s likely due to poor working conditions. But if employees are happy and loyal, it’s a good indication that the company is committed to keeping them happy.
The Bottom Line
You have a lot of options when it comes to investing in socially responsible companies which means there isn’t one right way to do it. There are a few key things to keep in mind when choosing an ethical investment such as their reputation, turnover rate, and legal compliance.
With that said, if you invest in companies that align with your values, you can sleep well at night knowing that you’re doing your part to make the world a better place.