Socially Responsible Investing

What is socially responsible investing (SRI)?

SRI is any general investing strategy that considers not only traditional measures of risk and return, but environmental, social, and corporate governance (ESG) factors as well.

The term socially responsible investing is often used interchangeably with terms such as ESG investing, socially conscious investing, or sustainable investing. For information on various SRI strategies, review our common questions.

SRI performance

SRI is a widely accepted investment approach that may allow investors to align their investments with their values without sacrificing performance.

Comparable performance

Schwab research has found that over the long term, SRI approaches have tended to perform very similarly to non-SRI approaches, and with similar levels of volatility.¹
Established investing approach

SRI has become a widely accepted investment approach with $21B invested into SRI mutual funds and ETFs in 2019 alone.²

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A wide range of low-cost SRI options
Choose from over 500 mutual funds, over 80 ETFs, and a wide range of separately managed accounts as of 5/31/2020.
Easy to use tools
Easily find and compare socially responsible funds using our proprietary screening and comparison tools.
Expert guidance
Get educational resources from Schwab experts to help you build your own portfolio.

Consider investing your conscience with the new Schwab Ariel ESG ETF.

The Schwab Ariel ESG ETF invests primarily in exchange-traded equity securities of U.S. companies that have been evaluated based on specific environmental, social, and governance (ESG) criteria. The Schwab Ariel ESG ETF may serve as a building block for those seeking investments that combine the potential benefits of an ESG focused investment strategy with long-term investing.

The Schwab Ariel ESG ETF is different from traditional ETFs.
Traditional ETFs tell the public what assets they hold each day. This fund will not. This may create additional risks for your investment. For example:

You may have to pay more money to trade the fund's shares. This fund will provide less information to traders, who tend to charge more for trades when they have less information.
The price you pay to buy fund shares on an exchange may not match the value of the fund's portfolio. The same is true when you sell shares. These price differences may be greater for this fund compared to other ETFs because it provides less information to traders.
These additional risks may be even greater in bad or uncertain market conditions.
The ETF will publish on its website each day a "Proxy Portfolio" designed to help trading in shares of the ETF. While the Proxy Portfolio includes some of the ETF's holdings, it is not the ETF's actual portfolio.

The differences between this fund and other ETFs may also have advantages. By keeping certain information about the fund secret, this fund may face less risk that other traders can predict or copy its investment strategy. This may improve the fund's performance. If other traders are able to copy or predict the fund's investment strategy, however, this may hurt the fund's performance.

For additional information regarding the unique attributes and risks of the fund, see Proxy Portfolio Risk, Premium/Discount Risk, Trading Halt Risk, Authorized Participant Concentration Risk, Tracking Error Risk, and Shares of the Fund May Trade at Prices Other Than NAV in the Principal Risks and Proxy Portfolio and Proxy Overlap sections of the prospectus and/or the Statement of Additional Information.

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Learn more about SRI options at Schwab

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We offer a wide selection of low-cost SRI mutual funds and ETFs from leading fund companies.

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Common questions

How has SRI evolved?

In the United States, the roots of socially responsible investing can be traced to the 18th century when religious groups began forbidding investments in companies with negative societal impacts, according to Investopedia. At the time, this meant avoiding investments in the slave trade, alcohol, gambling, and tobacco. However, in the 1970s and '80s, activists adopted the same practice to shun companies profiting from the Vietnam War and to protest South Africa's Apartheid. Today, the practice of removing a single industry or group of industries from a portfolio is known as "exclusionary screening".

However, SRI has come to mean more than simply removing certain types of businesses from a portfolio based on political or religious values. Today, Schwab's opinion is that "sustainable investing" assesses portfolio companies' environmental, social, and governance risks and opportunities, and determines how well each company is addressing risks relevant to its business.

How have SRI funds performed?

From a risk and return perspective, SRI is generally neutral for investors, neither helping nor harming returns significantly (though certainly some SRI funds will outperform and others will underperform their non-SRI counterparts in any given time period). However, an SRI approach that narrowly focuses on a subset of industries (by excluding others) may have higher volatility than a more broadly diversified approach.

How do SRI funds differ from non-SRI?

Schwab conducted tests based on data from Morningstar and found that as of 3/31/2020, SRI approaches, when compared to non-SRI approaches, had on average:

More exposure to small companies
More exposure to growth stocks (as opposed to value stocks)
Similar average volatility

Note, however, that these are broad averages, and it is possible for any particular SRI fund to have different exposures than those reflected here. In addition, the differences found by The Schwab Center for Financial Research (SCFR) tended to be small. Overall, SRI approaches tend to have similar characteristics to non-SRI approaches.

Are there different SRI strategies?

Yes, the approaches to SRI vary widely. Morningstar groups these funds into four general types:

ESG Consideration - Funds that are otherwise conventional that incorporate environmental, social, and governance (ESG) factors without orienting their entire investment process and outcomes around it.
ESG Focus - Funds that broadly integrate SRI criteria throughout their investment processes.
Impact/Thematic – Funds that invest with the intention of generating social and environmental impact alongside a financial return.
Sustainable Sector – Funds that focus on "green economy" industries like renewable energy, energy efficiency, environmental services, water infrastructure, and green real estate.

Source: Morningstar Sustainable Funds U.S. Landscape Report: Record flows and strong fund performance in 2019.

What are common SRI criteria used by investors?

The top five reasons why companies are excluded from SRI portfolios, based on data from US|SIF and data from Morningstar, are as follows.

US|SIF:

Climate change / carbon
Tobacco
Conflict risk
Human rights
Transparency

Morningstar:

Tobacco
Alcohol
Gambling
Controversial weapons
Small arms

Source: US|SIF Foundation, Report on US Sustainable, Responsible, and Impact Investment Trends 2018; Morningstar Direct data on mutual funds and ETFs by assets as of 9/30/2019.

US|SIF and Morningstar have very different categorization approaches for exclusionary factors, which leads to the different lists seen above.

How can investors construct an SRI portfolio?

Investors have several options when it comes to constructing SRI portfolios:

Choosing a collection of SRI mutual funds, ETFs, or separately managed accounts (SMAs) that align with the investor's aims
Buying individual stocks and bonds based on the investor’s own research into those securities that best represent the investor’s SRI goals
Working with a financial advisor or consultant to construct a custom portfolio based on the investor’s SRI goals, or who can recommend funds or SMAs aligned with those goals.

There’s no one "right" approach to SRI investing. Talk to your Schwab representative or your Financial Consultant if you want to learn more about what approach fits your needs.

What is Schwab's commitment to social responsibility?

Schwab is committed to social responsibility through sustainable real estate practices, responsible workflows, and investment stewardship. Schwab discloses key corporate sustainability metrics around carbon emissions, energy and water use, and volume of environmentally favorable purchases.

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Socially Responsible Investing

What is socially responsible investing (SRI)?

SRI performance

Comparable performance

Established investing approach

How Schwab helps

Consider investing your conscience with the new Schwab Ariel ESG ETF.

Learn more about SRI options at Schwab

Manage your own investments

Plan and invest with an advisor

Ready to get started?

Common questions

Call

See how we stack up to the competition.

$0 online equity trade commissions + Satisfaction Guarantee.

More choices. More ways to invest how you want.

More choices. More ways to invest how you want.

These 8 mental mix-ups could be costing you money. Do you know what they are?

These 8 mental mix-ups could be costing you money. Do you know what they are?

Socially Responsible Investing

SRI performance

Comparable performance

Established investing approach

How Schwab helps

Consider investing your conscience with the new Schwab Ariel ESG ETF.

Learn more about SRI options at Schwab

Manage your own investments

Plan and invest with an advisor

Open an account

Ready to get started?

Common questions