Socially responsible investing (SRI) involves investing funds in company’s that are attempting to make a positive sustainable and/or social impact. It can go by several different names, including ethical investing, values-based investing, and sustainable investing.
Common SRI investments tend to go to companies that are working towards environmental sustainability or alternative energy. Let’s review why SRI is important, the common strategies and how to become a socially responsible investor.
Why Is Socially Responsible Investing Important?
Socially responsible investing is continuing to grow and become more available for investors. It provides a way for people to invest in businesses that align with their personal values and beliefs.
SRI has a tendency to also align with the current political climate. Moreover, it is important to make sure investors are doing their research into the company they plan on investing. If situations begin to change within society, investments may also change; even if that has negative implications.
The Two Main Goals of SRI
Two main goals of socially responsible investing include looking at the social impact of the company you are investing in, as well as the potential for financial gain. Moreover, you want to make sure you are weighing the pros and cons of SRI. This includes the potential profitability of the business you are investing.
When an investor is considering a SRI, they should consider the social impact that a particular business is making. Looking for companies that are taking a stand for social justice or a cleaner future are two examples. However, just because a company is promising a positive social impact does not mean they can provide financial gains to investors.
As an investor, before investing in a company you want to be sure there is a possibility for financial gain. On the contrary, just because a company has promising financial gains does not mean they are socially responsible. SRI becomes a matter of weighing the pros and cons of what is most important to you as an investor.
What Affects SRI?
While there are many things that can affect SRI, there are two main factors that we will discuss. These factors include the current political and social climate.
Politics have always played an important role when it comes to socially responsible investing. While the roots of SRI are typically traced back to religious practices in the 1800s, it was changing political climates that have come to shape SRI as we know it today.
Many investors will look to invest in companies that are opposed to wars. They may also consider companies that are involved with clean energy or positive environmental impacts. This means that SRI can vary from one person to another, depending on the stance you take within the political climate.
The other important factor that can affect SRI is the current social climate. Finding companies that align with your particular values are one way investors may practice SRI. For example, in the 1960s, many were investing in business or companies that showed support for civil rights or women’s rights movements.
Investing in women-owned businesses or supporting black-owned businesses are two examples of ways investors consider the social climate when investing within today’s climate. When considering the social climate, it is important to find businesses that are promising a positive impact within society. Of course, this becomes subjective based on your values and beliefs.
Four Strategies of SRI
There are many different strategies when practicing SRI. Four important strategies include negative screening, positive screening, community investing and shareholder action. Let’s review these below.
The term negative screening when referring to SRI means screening a business based on their ethical, moral, or religious stance. If their stance does not align with your values, you would eliminate them from your possible investments.
Positive screening is the opposite of negative screening, in that investors would screen businesses based on their social or environmental impact; if a company’s values are similar to the investors, they would then decide to invest in them.
For example, if an investor is passionate about the environment, they may look for companies that are committed to clean energy practices and only invest in those companies.
One important strategy that investors may consider would be looking to invest or direct their investments in communities that could stand to benefit financially. For example, only investing in small businesses in low-income communities. These could include affordable housing or childcare facilities.
Shareholder action involves the investors of a company using their shareholdings to try and influence a corporation’s behavior or compliance with environmental, social, and governance (ESG). An example of this could be shareholders launching public campaigns against certain practices, with the expectation that their company will not practice that way.
Differences Between SRI and ESG
While SRI involves investing based on certain moral or ethical guidelines, ESG is a way to measure investments based on environmental, social and governance guidelines. ESG not only considers the overall impact of an investment but it also takes into account the potential financial return. There is evidence to suggest that ESG investing can involve less risk than socially responsible investing.
How To Become a SRI
It doesn’t have to be difficult to become a socially responsible investor. As an investor, you can decide what social and financial criteria you are willing to invest in. Finding funds that fill your needs and comparing and contrasting businesses are other ways you can be a socially responsible investor.
Make a Social Criteria
One way that you can invest responsibly would be to figure out what social criteria you want to align with and eliminate industries that go against these values. Similar to negative screening, removing companies that do not align with your social values is one way to do SRI.
Choose Your Financial Criteria
When looking to invest responsibly, another thing to consider would be what financial criteria you are willing to follow. If you are strictly looking to make a financial profit, you may not want to focus on SRI. You will need to make sure you weigh the pros and cons of SRI and the financial gains associated with the companies you are looking to invest in.
Make a List of Funds That Fill Your Needs
There are many funds, both mutual and exchange-traded, that follow ESG standards. Making a list of these funds and then finding which ones align best with your values is one of the many ways you can get started with socially responsible investing.
Compare and Contrast
Comparing and contrasting existing companies can also help you get started with socially responsible investing. It can also be beneficial for you to compare and contrast what values and beliefs you would like to prioritize when beginning to invest responsibly. Once you are aware of the businesses that share your values and the businesses that do not, it will be easier for you to begin.
Companies to Look at for SRI
As mentioned above, SRI often changes based on the current political or social climate. If you are looking to get started with SRI, there are several companies that you may want to consider.
Accenture is a global professional services company that focuses on technology in digital, could, and security. They make it simple for you to find out their stance on many ethical and corporate values by listing them on their website. They have a major environmental initiative to work towards eliminating virtually all electronic landfill waste.
Adobe is a top company that has worked to create the PDF and has developed Adobe Document Cloud, which makes editing, sharing, scanning, and signing documents accessible anywhere and at any time. If equal pay across the board is something that is important to you, you may want to consider investing in Adobe, as they are working towards equal pay between sexes for equal jobs.
Home Depot is one of the leading companies in home improvement needs. With climate change at the forefront of most discussions these days, you may want to consider investing in Home Depot. An important SRI initiative they are working on is eliminating certain harmful chemicals from their packaging.
As one of the leading entertainment companies in the world, Disney is well known by most people. With major theme parks located across the globe, Disney is working on reducing potable water usage at all of their parks. This could be an important environmental factor to consider when looking to invest.
Procter & Gamble
Procter & Gamble is a major corporation with a focus on providing packaged goods to people all over the world. They focus on beauty, health care, grooming, fabric and home care, and baby, feminine, and family care.
As an investor, if animal rights are something you have prioritized, then Procter & Gamble may be a company for you to consider investing in. Procter & Gamble has an SRI initiative to eliminate animal testing within their company.
Socially Responsible Investing and How it Can Affect You
If you are new to investing, socially responsible investing can seem a bit overwhelming. However, it doesn’t have to be. Knowing what is important to you and what you stand for is a great place to start.
Financial advisors are available to help you research companies and find the right fit for your investments. They will have knowledge and information available on companies across the globe and what stances they take on important ethical and moral issues. Consulting with a financial advisor can help you get started with socially responsible investing and what is best for you and your investments.