Socially Responsible Equity

Socially Responsible Equity Funds and ETFs have a mandate to invest in... Socially Responsible Equity Funds and ETFs have a mandate to invest in securities that score high on social factors. Social factors can include how a company treats its employees, its customers, as well as the firm’s impact on the wider community. Funds that look at social factors investigate how a firm performs on questions such as pay equity, racial and gender-based discrimination, employee pay, both in absolute terms but also relative terms (i.e., how much money does the CEO make vs. frontline workers), and the nature of employee benefits (such as health care, time off, and pensions). Reporting is integral to scoring well on social factors. The more detail a company provides on social issues, the more likely it is to score well, assuming that the data is credible and generally positive. Social factors can be used as either a positive or negative screen. A positive screen looks to include companies in a portfolio that are leaders on issues of social fairness and equity—such as a company that has an equal number of men and women in leadership positions. Meanwhile, a negative screen omits companies from certain sectors with issues that cannot be overcome. This might include a payday loan firm, for example, as it would be judged to exploit members of the community with ultra-high interest rates.
It is important to note that Socially Responsible Equity Funds and ETFs can be controversial. Some investors maintain a social lens is good investing, while others point to data showing underperformance by funds that use social analysis as a key input into their investment decisions. Last Updated: 01/24/2025 View more View less

Socially Responsible Equity Funds and ETFs have a mandate to invest in securities that score high on social factors. Social factors can include how a company treats its employees, its customers, as well... Socially Responsible Equity Funds and ETFs have a mandate to invest in securities that score high on social factors. Social factors can include how a company treats its employees, its customers, as well as the firm’s impact on the wider community. Funds that look at social factors investigate how a firm performs on questions such as pay equity, racial and gender-based discrimination, employee pay, both in absolute terms but also relative terms (i.e., how much money does the CEO make vs. frontline workers), and the nature of employee benefits (such as health care, time off, and pensions). Reporting is integral to scoring well on social factors. The more detail a company provides on social issues, the more likely it is to score well, assuming that the data is credible and generally positive. Social factors can be used as either a positive or negative screen. A positive screen looks to include companies in a portfolio that are leaders on issues of social fairness and equity—such as a company that has an equal number of men and women in leadership positions. Meanwhile, a negative screen omits companies from certain sectors with issues that cannot be overcome. This might include a payday loan firm, for example, as it would be judged to exploit members of the community with ultra-high interest rates.
It is important to note that Socially Responsible Equity Funds and ETFs can be controversial. Some investors maintain a social lens is good investing, while others point to data showing underperformance by funds that use social analysis as a key input into their investment decisions. Last Updated: 01/24/2025 View more View less