Socially responsible investing is any investment strategy which seeks to consider both financial return and social/environmental good to bring about social change regarded as positive by proponents.
An investment is considered socially responsible because of the nature of the business the company conducts. Common themes for socially responsible investments include avoiding investment in companies that produce or sell addictive substances (like alcohol, gambling and tobacco) and seeking out companies engaged in social justice, environmental sustainability and alternative energy/clean technology efforts. Socially responsible investments can be made in individual companies or through a socially conscious mutual fund or exchange-traded fund (ETF).
One example of socially responsible investing is community investing, which goes directly toward organizations that have a track record of social responsibility through helping the community and have been unable to garner funds from other sources, such as banks and financial institutions. The funds allow these organizations to provide services to their communities, such as affordable housing and loans. The goal is to improve the quality of the community by reducing its dependency on government assistance such as welfare, which in turn has a positive impact on the community’s economy.
Gerhard Moser CEO adds: “The Socially Responsible Investing (SRI) market is growing quickly but we must be careful that it isn’t just labelled as sustainable investment on the surface. A best-in-class investment in the tobacco or arms sector is not going to help make our society more sustainable. We encourage all investors to seek out funds that are not only best-in-class, but that apply strict sustainability criteria.”
Like early internet stocks, biotech, and bitcoin, the latest investment hot topic, cannabis, is causing quite the stir among investors. But what makes it even more interesting than its hot and hip predecessors is its categorization as a socially responsible investment.
Let’s start at the beginning. Socially Responsible Investing (SRI) was started to actually avoid controversial investments such as alcohol, gambling, weapons, fossil fuel, and military-related products. Not long after this introduction, some funds took the idea further by avoiding companies that produced products related to contraception or abortion because they were not in line with certain religious beliefs. As time passed, SRI has grown to include “green” investing, focusing on companies that reduce the world’s dependence on carbon-based energy.