Investing with a social conscience
Provided by RBC Wealth Management
and Dave Dupont
When it comes to investing, you don’t have to leave your values behind. Instead, they can become a roadmap for the development of an investment portfolio.
Socially responsible investing
A popular investing strategy based on values is called socially responsible investing. It typically employs five approaches.
• Engagement — Leverage ownership rights to influence corporate boards and management.
• Negative screening — Avoid companies that don’t align with your values.
• Positive screening — Seek companies that meet specific socially responsible criteria.
• Thematic investing — Focus on companies that offer innovative solutions to challenges.
• Impact investing — Provide a loan to a worthy cause to fund a specific purpose.
There is also an opportunity to choose a focus area for a socially responsible investment allocation.
• Cause investing — Environmental concerns — Address issues such as clean technology, pollution, climate and broad environmental concerns.
• Environmental, Social, Governance (ESG) — Address issues such as labor relations, human rights, executive pay and others in tandem with environmental concerns.
• Values-based (Religious) — Generally use faith-based criteria to select investments.
Municipal bonds
Purchasing municipal bonds is another way to make a difference in your community. A municipal bond is typically issued by a local government or their agencies. This type of investment often goes toward supporting the civic good: infrastructure (roads, bridges, sewer and water systems), schools and health care facilities.
Charitable gifting and charitable remainder trusts
Investing for the social good can take other forms as well. Many people may have a favorite charity they want to support. Making monetary donations or transferring shares of appreciated stock to a charity helps the organization; the ability to deduct the donation makes a difference for you at tax time.
Beyond a single donation, you may want to consider another method of gifting — a charitable remainder trust. By donating stock to a charitable remainder trust, you can reap additional benefits from your gift. The proceeds of a charitable remainder trust could be a source of income during your lifetime. After you die, the trust would pay the principal to the charity you designated to receive it.
Designating a charity as a beneficiary
Beyond supporting a worthy organization during your lifetime, proper estate planning could mean a charity can benefit after your death. Designating a favorite charity as a beneficiary of your life insurance policy or retirement investment account such as an IRA or 401(k) can benefit both the organization and your heirs who may find some relief from estate taxes upon your death.
