What is Socially Responsible Investing or SRI?
If you're interested in living according to your values, you may already take many actions in your everyday life towards that goal, from reducing waste and energy use to making charitable donations to signing petitions.
Another avenue you may not have considered? How you invest your money.
More and more investors are interested in expressing their values through their investment portfolios. For instance, they might choose to reduce their exposure to companies that don't align with their values or increase their exposure to companies that do. All of this can fall under the general category of "socially responsible investing," or "SRI."
It's important to note that this area has a lot of terminology. Some of this terminology overlaps, and some describe different aspects of SRI. Let's unpack a few of the basics.
Types of socially responsible investing
SRI may also be referred to as responsible investing, ethical investing, social investing or sustainable investing.
Depending on where you look, the names and exact definitions might vary. In general, think about SRI as making investment decisions that align with the social issues you care about in some way. Some specific types of SRI include:
Impact investing
Impact investing falls under the umbrella of SRI, but it has a more specific focus: its intention is to generate a positive, measurable social or environmental goal while also generating a financial return. For example, investing in an organization that develops affordable housing might be considered impact investing.
Environmental investing
Environmental investing is also known as "green" or sustainable investing. Environmental investors might avoid funding fossil fuel development and projects that involve deforestation or support clean energy or waste management projects.
Social investing
Social investing focuses on issues such as labour standards, Indigenous inclusion and reconciliation, and human rights. Social investing might look like investing in companies that promote diversity in their operations and on their board of directors.
Halal investing
Halal investing focuses on investments that align with Islamic law. That might look like avoiding companies that earn revenues from alcohol or gambling.
What to look for in socially responsible investments
Investment portfolios can be modified to align more closely with social issues in several ways.
ESG factors
ESG stands for Environmental, Social, and Governance. By considering ESG factors, any company that fails to meet the criteria could be excluded from the portfolio.
An environmental factor might include a threshold for how big a company's carbon footprint (or carbon intensity) is.
A social factor could include screening for a high standard of labour conditions for workers of a multi-national company. Some employees might live and work in Canada (where labour protections are stronger), and some company employees may live and work in less developed countries, where labour laws are less protective of workers.
Governance factors might include requirements to have strong diversity, equity and inclusion (DEI) policies, or require shareholder voting on executive compensation levels.
Negative screening
Generally, negative screening would exclude companies from a portfolio if they met certain undesirable criteria. For example, excluding companies involved in alcohol, tobacco, and gambling.
Thematic investing
A thematic investing strategy focuses on a particular theme, such as clean water initiatives, or investing more heavily in companies with higher gender diversity in senior management.
Pros and cons of socially responsible investing
Socially responsible investing offers some advantages and disadvantages over traditional investing.
Pros of socially responsible investing
If you're interested in the environmental and social challenges we face, shifting some or all of your investments into an SRI portfolio might be a good fit.
SRI is a way to align your investments with your values, whether it's support for social justice, equitable governance, or efforts to combat climate change.
Some SRI portfolios aim to use their approach to manage long-term risks, as ESG-focused companies may be more “sustainable” and better equipped to handle regulatory changes and long-term market trends.
Cons of socially responsible investing
While many pros are associated with socially responsible investing, there may also be other factors to consider.
Some SRI/ESG funds may have higher fees, which can cut into your investment earnings.
SRI offers a narrowed investment universe, which means possible tracking differences or performance trade-offs compared to industry benchmarks.
When choosing SRI investments, make sure to read the fund documents to understand how they operate.
Investing in a narrower portfolio can expose you to more volatility and may underperform conventional broad-based indexes.
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- Controversial business activities (such as tobacco and fossil fuels)
- High carbon intensity
- Violation of established international norms (such as corruption and human rights)
- Gender representation
- Controversial weapons.
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Who is an SRI portfolio best suited for?
SRI portfolios aren't for everyone. But they're an obvious choice for values-driven investors who care about impact. Choosing SRI doesn't have to mean sacrificing earnings. But it might be right for you if you're seeking long-term growth potential with a sustainability lens.
SRI portfolios are well-suited to those with enough time horizon and risk capacity to tolerate diversification limits and sector concentration. That said, socially responsible investments aren't one-size-fits-all. Investors can choose from a wide selection of funds and other investing vehicles that fit their profile and needs, whether they're looking for aggressive growth, a balanced portfolio, or a conservative approach.
Frequently asked questions about socially responsible investing
Still have questions about socially responsible investing? Here are some things to think about.
How do I know if a fund is actually ethical?
There are ways to evaluate a fund. One is a framework by the Canadian Investment Funds Standards Committee (CIFSC) that classifies funds based on whether they meet various standardized criteria, such as excluding certain investments for ESG-related reasons.
You can also look at a fund's top 10 holdings to see if they include any companies you're uncomfortable investing in. Watch for specific identifications of the fund's SRI goals. ("Sustainable," alas, isn't a technical term.)
Can I use ETFs or mutual funds to build an SRI portfolio?
Yes, there are numerous ETFs and mutual funds designed for SRI-focused investors, from those targeting broad indexes to those focused on specific industries.
Building your SRI portfolio with Tangerine
Socially responsible investing allows Canadians to invest their money while making decisions that align with their values and goals. The key is to find trustworthy SRI investments that provide comparable or even better earnings than non-SRI funds. One place to start is with Tangerine, which offers a range of SRI portfolios to meet the needs of all kinds of investors, with the benefit of low management fees. Find out more about these portfolios and how they might meet your investing goals.
¹The MER for the period ended December 31, 2025 was 0.82% for the Tangerine Socially Responsible Global Portfolios, after applicable waivers and absorptions by the manager.
