The term "socially responsible investment," abbreviated as "SRI," refers to a strategy that considers not only the financial rewards that may be made from an asset but also the influence that the investment can have on environmental, ethical, or social change.
It may be challenging for prospective investors to choose which businesses to back with their own money to maximize their returns. For this reason, investors think about diversity, dividends, rates of return, inflation, taxes, and hazards while making investment decisions.
Socially responsible investors are taking their activities even further in today's world. In addition to the factors outlined above, one of the considerations they make is whether or not a specific investment has a favorable influence on society.
A Concise Overview of the Development of Socially Responsible Investment
The Quakers were a group of people who were a member of the Religious Society of Friends in the 1700s. This group likely was the first to practice socially responsible investment. During that historical period, Quakers were certain that they would not participate in the slave trade or in any other enterprise that included buying and selling humans.
John Wesley was another influential figure who advocated for the SRI technique. Wesley, a man of the cloth, said it was immoral to pursue one's financial interests at the cost of the well-being of another person. In addition to that, he urged the people in his church to abstain from gambling and to not provide their support to businesses that worked with hazardous chemicals.
For a considerable time, socially conscious investors avoided investing in what is often referred to as "sin industries," such as the tobacco, alcohol, and gambling. In contrast, the investment pattern shifted in the 1960s when individuals started funding initiatives that also promoted racial rights.
An excellent illustration of this may be seen in the protesting disinvestment in South Africa in the 1980s. During that period, individual investors and businesses decided to pull their assets out of South Africa due to the apartheid regime that led to discrimination against certain racial groups.
The practice of socially responsible investing has come a long way from its beginnings as a straightforward endeavor connected with religious communities. These days, many investors engage in this kind of investing. It is an idea that is continuing to get support from both people and businesses, contributing to its rise in popularity.
Ways to Make Socially Responsible Investments
A socially responsible investment (SRI) might include a wide variety of various kinds of investments, all of which have the characteristic that they contribute favorably to the community in which they are located. To be more precise, investors interested in making such investments pay attention to the following three main aspects: the environmental, social and corporate governance (ESG). When determining whether or not an investment will positively or negatively influence society, investors look at all three of these aspects.
Nowadays, socially conscious investors utilize a variety of strategies to guarantee that their businesses are successful in meeting societal needs, including the following, among others:
1. Negative Screening
The name of this method implies that it is used to do a preliminary examination of a firm before making any financial commitments. Therefore, prospective investor will not put their money into a certain firm if they discover that it participates in unethical business methods or manufactures harmful products like cigarettes.
2. Positive Investing
In this scenario, investors decide to put their money into businesses whose policies and procedures they support. Take, for instance, the case of a person who is deeply concerned about the state of the environment. Therefore, their savings and investments will likely be based in environmentally friendly technologies.
It might also suggest that the only businesses with whom they are ready to work are those that uphold environmentally responsible policies and procedures. Some examples of such environmentally friendly actions are as follows:
Establishing a recycling initiative at one's place of employment
Practicing water economy
Investing in technology that has a low impact on the environment
Implementing environmentally friendly practices at work, such as requesting that employees turn off the lights in rooms that are not currently being used.
3. Community Investing
Community investment is one of the ways for investors to get their feet wet with socially responsible investing (SRI). Putting money into initiatives that will help local communities economically is what this implies. For instance, endeavors that provide possibilities for those who are marginalized in society while making use of easily accessible resources from the local community.
Types of Socially Responsible Investments
There are a few distinct kinds of socially responsible investments to choose from when considering the various approaches to investing. They are as follows:
1. Mutual Funds and Exchange-Traded Funds (ETFs)
The ESG requirements are met by many different exchange-traded funds and mutual funds. If an investor is interested in investing in any of the two funds, they should go to the SIF website, which provides information on over one hundred socially conscious mutual funds. Additionally, users can examine a variety of ETFs that prioritize social responsibility at this location.
2. Community Investments
Directly funding community-oriented initiatives is another option for investors. Contributing to organizations that support local economic growth is a straightforward method for making such an investment (CDFIs).
Individuals also have the opportunity to participate in socially responsible investing by providing microloans or other modest loans to newly established businesses. They can look for enterprises in underdeveloped nations willing to provide financial aid.
A socially responsible investment, often known as an SRI, is an investment that seeks to maximize both financial return and positive impact on society and the environment. SRI can be implemented with very little effort. There is no discernible difference between it and more conventional forms of investment. All you're doing is establishing another criterion for your investment decisions, in this case, favoring those that will have a beneficial effect on society.