Investors who are more mindful of social and environmental responsibilities and would like to invest based on theses values can take a look at exchange traded funds that specifically target socially responsible companies.
For example, the iShares MSCI USA ESG Select Social Index Fund (NYSEArca: KLD) and iShares MSCI KLD 400 Social ETF (NYSEArca: DSI) provide broad exposure to companies with socially responsible characteristics. Over the past year, KLD and DSI are both up about 10.6%.
Many companies have defined their corporate social responsibility to account for their impact on the environment and social welfare even if there is no legal requirement, writes Morningstar analyst Alex Bryan.
With these socially responsible parameters, companies may be taking on a long-term business model.
“In getting out ahead of environmental and social problems that their operations may create, companies may be able to stave off potentially onerous regulations and reduce political risk,” Bryan said. “A proactive approach can also reduce the risk of conflicts with nongovernment organizations and other advocacy groups that can hurt sales and damage the value of a brand.”
In the short-term, some observers may argue that companies could be intentionally setting input costs higher. For instance, some companies may acquire ingredients that have been Fairtrade certified, which provides farmers in emerging countries above-market prices to promote improved standard of living. Nevertheless, many consumers are willing to pay more for the products to feel better about the way a product was made.