What is Socially Responsible Investing?

Cameron Yusko |

What is Socially Responsible Investing (SRI)?

As younger investors begin to invest their own hard-earned money, growing theme is to try to help the environment and people throughout the world.  One way to achieve that goal is to participate in Socially Responsible Investing. Socially responsible investing (SRI), or social investment, also known as sustainable, socially conscious, "green" or ethical investing, is any investment strategy which seeks to consider both financial return and social and environmental betterment to bring about social change to positively impact all involved.

Socially Responsible Investing

In general, socially responsible investors aim to promote corporate practices that they believe augment environmental protection, consumer safety, human rights, and racial or gender diversity. This includes companies that produce or invest in alcohol, tobacco, gambling and weapons. Instead, SRI involves investing in companies engaged in ethical and socially conscious themes, like environmental sustainability and social justice. Some investors also consider SRI to stand for sustainable, responsible and impact investing. Regardless of your preferred definition, socially responsible investing works toward both positive change and financial gain.

In general, socially responsible investors aim to promote corporate practices that they believe augment environmental protection, consumer safety, human rights, and racial or gender diversity. This includes companies that produce or invest in alcohol, tobacco, gambling and weapons. Instead, SRI involves investing in companies engaged in ethical and socially conscious themes, like environmental sustainability and social justice. Some investors also consider SRI to stand for sustainable, responsible and impact investing. Regardless of your preferred definition, socially responsible investing works toward both positive change and financial gain.

From 2016 to 2018, sustainable, responsible and impact investing enjoyed a growth rate of more than 38 percent, increasing from $8.7 trillion in 2016. More than one out of every four dollars under professional management in the United States today—26% of the $46.6 trillion in total assets  under management tracked by Cerulli Associates - as involved in SRI.  .

How can you participate?

There are multiple ways to participate in socially responsible investing. Socially responsible investing is for those who have a personal connection to their investments, and want to invest their money in noble causes. There are two sides to SRI–investing in companies that you feel have ethical business operations and probably more so, avoiding companies that you think don’t have ethical business practices, products, or services.   For example, there are socially responsible investing funds, environment, social and governance funds, impact funds, and faith-based funds among others.  Each of the different categories of socially responsible funds has slightly different goals and aspects to them but in the end all of the same goal investing in a better future for society as a whole. 

There are several inspirations for socially responsible investing, including personal values and goals, institutional mission, and the demands of clients, constituents or plan participants. Sustainable investors aim for good financial performance, but also believe that these investments should be used to add to improvements in social, environmental and governance practices. They may actively seek out investments—such as community development loan funds or clean tech portfolios—that are likely to provide important societal or environmental benefits for the masses.

An important segment, community investing, seeks clearly to finance projects or institutions that will help poor and underserved communities in the United States and overseas. Sustainable investing strategies work together to encourage responsible business practices and to allocate capital for social and environmental benefit across the economy.  Another piece of socially responsible investing is shareholder engagement.

What is Shareholder Engagement?

Owning shares in a company gives investors a channel through which to raise environmental, social, and corporate governance problems. By filing or co-filing advisory shareholder resolutions at US companies, which may proceed to a vote by all shareholders in the company, active shareholders bring important issues to the attention of company management, often winning media attention and educating the public.  The goal of shareholder engagement is to ultimately have the company involved commit to practices that will improve the environment, the society as a whole, or human rights among various other ideals depending on the issues involved.

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