Responsible investing principles support goals-based planning

April 22 is traditionally set aside to honor Earth Day. First formally recognized 48 years ago, Earth Day has evolved into an international celebration, with nearly 200 countries holding events to support clean air, clean water, and other measures to protect our planet.

Today, many individuals are upholding the ideals behind Earth Day every day, by making financial choices to reflect their environmental values. By using responsible investing principles to select the securities you own, you can likewise incorporate your values into your goals-based approach to wealth management.

Used in a manner similar to an alternative investment, you can allocate a portion of your portfolio to responsible investments for diversification purposes, or you may allocate as much as you wish to responsible investments without sacrificing your ability to work toward your financial goals. The choice is yours.

To get started, talk with your financial advisor. You may want to determine what issues you care about. For example, if you are concerned about the environment, you might say global warming, pollution, and sustainability are all issues that matter to you.

As a next step, you may want to prioritize which issue is most urgent for you. You might then pick one issue in particular, such as global warming, and focus your responsible investment efforts upon addressing it specifically.

Alternatively, you may want to look for opportunities to combine your interests and pick a sector of the economy with consequences for all three hypothetical issues. In this scenario, you might choose to direct your responsible investing efforts toward the fossil-fuel industry.

After prioritizing the issues, you may then want to determine which responsible investing strategy to adopt. Generally there are three widely accepted choices:

  • Socially responsible investing — This strategy uses a set of parameters you define to remove or avoid investments you may object to based on your values. Using the fossil fuel industry example, it is for when you want to say, “None of this for me,” simply by not participating in the financial success of oil producers.
  • Environmental, social, and governance — This strategy allows you to select money managers who seek investments that perform well financially in addition to performing well on these desirable metrics. Using the fossil fuel industry example, it is for when you want to say, “I want to be a positive influence on this,” perhaps by choosing managers who include environmental stewardship when evaluating securities.
  • Impact investing — This strategy focuses on putting money to work to solve a specific problem as a primary goal, with financial return being a secondary, though equally necessary, goal. Using the fossil fuel industry example, it is for when you want to say, “I want to change this,” perhaps by helping capitalize oil producers making strong progress toward renewable energy sources.

Adopting responsible investing best practices can be empowering, both financially and in terms of your values. After all, you are connecting three of the things that may be most important to you: your deeply held personal beliefs, your financial goals, and the wealth you have worked hard and invested carefully to earn.

This article is provided by RBC Wealth Management on behalf of Beth Norman, CFP, senior vice president, a financial advisor at RBC Wealth Management, and may not be exclusive to this publication. The information included in this article is not intended to be used as the primary basis for making investment decisions. RBC Wealth Management does not endorse this organization or publication. Consult your investment professional for additional information and guidance. RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC

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