Socially responsible investing (SRI), also known as social investment, is an investment that is deemed socially responsible owing to the nature of the company’s activity. Socially conscious investing is a recurrent theme in socially responsible investments. Sustainable agriculture, renewable energy, conservation, microfinance, and inexpensive and accessible essential services, such as housing, healthcare, and education, all benefit from the rising SRI sector.
Socially responsible investing has two primary objectives: social impact and financial gain. The two do not have to go hand in hand; just because an investment claims to be socially responsible does not guarantee that it will give a satisfactory return to investors. The promise of a good return is no guarantee that the corporation will be socially responsible. An investor must still evaluate the investment’s financial prospects while determining its social value.
Here are five examples to get you started on your socially responsible investing path.
Individual Companies and Stocks
Investing in individual companies and stocks is an example of SRI because it requires investors to select socially responsible enterprises based on a set of criteria. Negative screening, which completely avoids a specific category of stocks, such as tobacco or mining, is a common strategy utilized in this selection procedure. And norm-based screening, which is based on firms adhering to international standards.
Using a set of criteria such as ESG has also become popular in SRI. SRI stock selection involves learning more about a company’s performance, social effect, priorities, and culture. Investors can more easily see a company’s efforts and commitment to the SDGs and other global impact measures when it publishes a sustainability report. Companies’ sustainability reports are also validated by third-party sources like MSCI ESG Ratings and Sustainalytics ESG Ratings.
Mutual Funds and ETFs
Socially conscious investing has been increasingly popular in recent years. There are dozens of new funds and pooled investment vehicles accessible for regular investors. Mutual funds and exchange-traded funds (ETFs) offer the simplicity of gaining exposure to various companies across several sectors with a single investment.
Investors should scrutinize fund prospectuses to determine the particular philosophies used by fund managers as well as the possible profitability of these investments. VanEck Investment Grade Floating Rate ETF (FLTR), issued by VanEck; SPDR Bloomberg Investment Grade Floating Rate ETF (FLRN), issued by State Street; and iShares Floating Rate Bond ETF (FLOT), issued by BlackRock Financial Management, are among the top socially responsible bond ETFs.
Investors can also put their money directly into community-beneficial projects. Community Investments puts money to work in the community to offer safe and affordable housing, employment opportunities, education, healthcare, financial counseling, child care, and other important community services. Contributions to community development financial institutions are a simple way to make such an investment. Community investment funds organizations that have demonstrated social responsibility by assisting the community have been unable to obtain financing from other sources, such as banks and financial institutions. These are often non-profit organizations, civil society organizations, academe, and private foundations.
SRI is essentially putting money and investing resources to work for the betterment of society to generate specific benefits that promote social gains. This can be accomplished by investing in non-profits and their causes. Advocacy-driven investing is socially responsible or impact investing that aims to increase investments in environmental sustainability, education, and justice.
Promoting racial justice, equality, and inclusion is an example of advocacy-driven investing. The goal of racial justice investing, also known as impact investing, is to use institutional and retail money to invest in ways that advance this and other anti-racist causes. Another example is green investing, which involves making investments in firms or projects that are committed to preserving natural resources.
Offering microloans or modest loans to start-ups is another method individuals can make socially responsible investments. They can hunt for firms or conduits that provide financial help in underdeveloped countries. Microfinance has long been used to aid development. It has the potential to boost self-employment and microenterprise creation in developing countries. Microfinance can help households increase their prospects of earning more money, allowing them to better provide for their family and improve their quality of life.