DEFINITION of Socially responsible investing (SRI)
Socially responsible investing SRI, you can find under the names: social investment, also as sustainable, socially conscious, “green” or ethical investing.
WHAT IT IS IN ESSENCE
It is an investment strategy which seeks to consider both financial return and social/environmental good to bring about a positive change.
Socially responsible investors have different goals for their investments. But always consider ethical, social, environmental and governance criteria as well as financial return.
They may focus on companies which conduct business in a socially positive manner.
Or exclude companies which have a negative social or environmental impact like tobacco companies.
One common method of socially responsible investing is via ETFs. There is a wide range of socially responsible ETFs that follow ethical principles when choosing equities.
HOW TO USE
There are several motivations for sustainable, responsible and impact investing. It can be personal values and goals, institutional mission. Also, the demands of clients, constituents or plan participants. Sustainable investors aim for strong financial performance. But also believe that these investments can contribute to advancements in social, environmental and governance practices. They may actively seek out investments, that are likely to provide important societal or environmental benefits. In this corpus belong community development loan funds or cleantech portfolios. Some investors embrace SRI strategies to manage risk and fulfill commissioner duties. They review ESG criteria to assess the quality of management and the likely resilience of their portfolio companies in dealing with future challenges. Some are seeking financial outperformance over the long term.
These criteria help many socially responsible investors decide which companies or funds to invest in. This includes companies that respect the environment, treat their employees and suppliers fairly and promote ethical policies.
Some investors believe that companies that practice good citizenship can yield greater returns than those that don’t.
Recently, some academic research shows a strong link between ESG and financial performance.