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Socially responsible investing: How to build a portfolio that matches your values

M1 Team
M1 Team July 28, 2026

Socially responsible investing (SRI) is a strategy that weighs a company’s social and environmental impact alongside its financial prospects. It’s an umbrella that covers ESG investing, impact investing, and faith-based investing. The aim is to build wealth in a way that reflects your values — while accepting the same market risks any investment carries. 

Socially responsible investing has become a popular strategy for investors who want to grow their wealth but don’t want their money supporting corporations that do not align with their values. 

SRI is not a one-size-fits-all strategy; you get to choose the beliefs or values you’d like to uphold. SRI isn’t just about feeling good — many investors develop unique SRI strategies that may help move them toward reaching their financial goals. 

Let’s look at the several types of socially responsible investments, the benefits and drawbacks of SRI, how it performs, and how to get started.

What is socially responsible investing?

Socially responsible investing (SRI) is an investing strategy based on both a company’s expected financial performance and its contributions to society. 

In other words, a socially responsible investor’s goal is to invest in building their wealth in a way that considers the impact that companies have on the world and its people. This type of investing can be adapted to many different individual beliefs, values, and principles.

Types of socially responsible investing: SRI, ESG, impact, and faith investing

“Socially responsible investing” is often used loosely, and a few related terms get mixed together. Here’s how they differ — and how they nest inside each other. 

  • Socially responsible investing (SRI) — The umbrella term. Any approach that factors a company’s effect on the world alongside its financial prospects. SRI historically leans on exclusion: screening out industries an investor wants to avoid (for example, tobacco, weapons, or fossil fuels). 
  • ESG investing — A framework for measuring that effect across three dimensions: Environmental, Social, and Governance. ESG data is used to score and compare companies, so it leans more on rating and including companies than on screening them out. People often use ESG as a near-synonym for SRI, but ESG really just names how the scoring is done. 
  • Impact investing — A subset of SRI where generating a measurable positive outcome (say, funding clean energy or affordable housing) is a primary goal alongside financial return, not just a screen applied to it. 

Faith investing 

Faith investing, a subset of socially responsible investing, focuses on building portfolios based upon the values of a particular religion. The origins of sustainable investing can even be traced back to faith investing. Religious groups like Muslims, Quakers, and Methodists used their ethics codes to guide their financial decisions and pave the way for more values-based, sustainable strategies.

Why are some investors interested in socially responsible investing?

SRI can offer a number of benefits, including: 

  • The ability to potentially build wealth in line with your values. 
  • The ability to invest in companies whose work you believe is improving the world. 
  • A way to act on your values through your portfolio, if giving time as a volunteer or money as a donation isn’t practical. 

Like any investing strategy, of course, socially responsible investing also has potential drawbacks: 

Profits are not always the top concern 

This means you may earn less than you would if you invested without considering the social impact. Then again, no investment returns are ever guaranteed. 

You’ll have to watch out for “greenwashing” 

As SRI has grown in popularity, more companies have adopted the practice of “greenwashing,” which involves making themselves appear socially responsible (via specific marketing, donations, etc.) while still engaging in socially or environmentally harmful practices. 

Corporate practices may change 

Companies are not static. Just because you agree with a company’s business practices one year doesn’t mean you’ll agree with them the following year. 

Of course, for the engaged investor (https://m1.com/blog/active-vs-passive/), regularly researching the companies in your portfolio shouldn’t be a new concept or an added burden. Just know that when you engage in socially responsible investing, you’re adding an objective beyond earning money to your investment portfolio, which means you’ll have to track the performance of that additional objective.

How do socially responsible investments perform?

The honest answer: the evidence is mixed, and values-based investing does not reliably beat — or lag — the broader market. Returns depend on the specific funds or stocks you choose, the screens you apply, and the period you measure. 

There are trade-offs on the other side, too. Values-based screens shrink the pool of investments you can pick from, which can lower diversification and pull your returns — up or down — away from the broad market. 

These funds also tend to charge higher fees than plain index funds, and higher fees eat into your returns over time. FINRA’s guide to ESG investing covers these cost and screening trade-offs in more detail.

Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results. This is educational information, not investment advice.

How can you get started with socially responsible investing?

Socially responsible investing can be a meaningful way to put your money to work in line with what you care about. Here’s how you can get started. 

1. Learn the basics

Check out ESG investing for tips on what to look for in investments like ETFs.  

2. Explore your options 

Many helpful guides offer tips for choosing stocks and ETFs that align with your values and financial goals. Here are some to explore: 

For social and environmental justice 

Look at Green America’s Guide to Socially Responsible Investing and Better Banking. Among other resources, this series of articles offers tips for engaging in shareholder activism to spur change within companies and information on the divestment movement. 

The USSIF also offers Investing to Curb Climate Change, which discusses where to put socially responsible investment funds and ways to encourage more climate-friendly practices at local businesses and local government. 

To support women’s rights 

There are a few investment strategies that support women’s rights. If you’re interested, check out this article about gender lens investing, where you can learn about how some companies develop funds with women’s empowerment in mind (as well as some of their common pitfalls). 

To align with your faith 

Many religions offer guidelines for investing in a way that aligns with their ethos. Examples include the Dow Jones Islamic Market Index, Socially Responsible Investing Guidelines for Catholics, and the Unitarian Universalist Association’s Socially Responsible Investment Guidelines. If you follow a faith tradition and are interested in investing according to its principles, do a little Googling; you’ll probably come across helpful guidelines. 

3. Build a portfolio that reflects your values 

There are two common routes here: invest in a portfolio that has already been screened for values criteria, or assemble your own holdings. Neither is inherently better — the trade-off is convenience versus control over exactly what you hold. If you’re building your own, a common approach: 

  1. Decide what matters to you. Clarify the causes or industries you want to support or avoid. Your criteria drive everything that follows. 
  1. Research funds and companies that fit. Look for ETFs or individual stocks whose holdings and screens line up with your criteria. Read the fund’s actual holdings and methodology — not just its name — to check for greenwashing. A few common red flags to watch for: 
    • A fund’s name signals values (for example, “sustainable” or “ESG”) but its top holdings don’t obviously reflect them. 
    • The methodology is vague about how companies are screened or scored. 
    • Broad claims of impact with little detail on what’s measured or excluded. 
    • Values-based funds can also carry higher fees than broad index funds, so compare expense ratios as you go. 
  1. Set your target allocation. Decide what percentage of your portfolio each holding should represent, and keep it diversified across sectors and asset types to help manage risk. 
  1. Automate and stay on track. Schedule recurring contributions and rebalance periodically so your portfolio holds to the targets you set. 

The M1 bottom line

At M1, both routes are available. M1’s Model Portfolios include a Responsible Investing (ESG) category — pre-built portfolios of ESG funds you can invest in as-is, without picking individual holdings. If you’d rather set your own criteria, M1 Invest lets you choose the ETFs and stocks that fit your values and assign each a target weight in a custom portfolio. Either way, M1 directs your new deposits toward the target weights you’ve set. 

Model Portfolios are not personalized recommendations, and M1 does not assess whether any portfolio is suitable for your circumstances. Review a portfolio’s holdings and screening methodology before investing to confirm the criteria match your own. 

Building a portfolio at M1 involves a platform fee and other fees may apply — see the M1 Fee Schedule. As with any strategy, a values-based portfolio carries market risk, including the possible loss of principal, and screening for values may narrow diversification. And if you’re shifting an existing taxable portfolio to match your values, selling holdings can trigger capital gains — a tax cost worth weighing before you rebalance. Some investors ease that by building the values tilt in a new or tax-advantaged account, or by phasing the change over more than one tax year, rather than selling everything at once.

Frequently asked questions about socially responsible investing

What’s the difference between ESG, SRI, and impact investing?

SRI is the umbrella term for investing that weighs a company’s effect on the world alongside its financials, historically through exclusion screens. ESG is the framework used to measure that effect across environmental, social, and governance factors, while impact investing is a subset of SRI where achieving a measurable positive outcome is a primary goal, not just a screen. The terms overlap and are often used interchangeably.

Do socially responsible or ESG investments perform worse than traditional ones?

Not reliably in either direction — the research is mixed, and results depend on the specific holdings, screens, and time period. Values-based screens can narrow diversification, and these funds often carry higher expense ratios than broad index funds, which reduces net returns over time.

Can I build my own ESG portfolio, or do I need a special fund?

You can do either. Some investors buy ready-made ESG or SRI funds or pre-screened model portfolios; others build a custom portfolio by selecting individual ETFs and stocks that match their values and setting a target allocation. M1 supports both: its Model Portfolios include a Responsible Investing (ESG) category, and M1 Invest lets you construct and automate a custom target allocation from holdings you choose. Model Portfolios are not personalized recommendations — review the holdings and screening methodology to confirm the criteria match your own. Building a portfolio at M1 involves a platform fee and other fees may apply — see the M1 Fee Schedule. As with any strategy, a values-based portfolio carries market risk, including the possible loss of principal.

Is socially responsible investing worth it?

That depends on your goals and how much you value aligning your portfolio with your principles. SRI lets you invest in line with what you care about, but it can involve trade-offs like narrower diversification and potentially higher fees — so there’s no single right answer. One common approach is to weigh the personal importance of values alignment against those trade-offs.

Updated July 28, 2026

Investing involves risk, including the possible loss of principal. This content is educational and is not personalized investment, tax, or legal advice. M1 does not provide tax advice; consult a qualified professional about your situation. Tax figures and rules referenced are set by the IRS and change periodically — verify current figures at IRS.gov. Brokerage products and IRAs are offered by M1 Finance LLC, member FINRA/SIPC. 

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