Socially responsible investing (SRI) is an investment that is considered socially responsible due to the nature of the business the company conducts. It is also known as social investment, sustainable socially conscious, “green” or ethical investing, is any investment strategy that seeks to consider both financial return and social/environmental good to bring about social change regarded as positive by proponents. Common themes for socially responsible investments include socially conscious investing.
Recently, it has also become known as “sustainable investing” or “responsible investing”. It can be made into individual companies with good social value, or through a socially conscious mutual fund or exchange-traded fund (ETF). There is also a subset of SRI known as “impact investing”, devoted to the conscious creation of social impact through investment. That is an important risk for investors to understand, because if an investment is based on social value, then the investment may suffer if that social value falls out of favor among investors.
In general, socially responsible investors encourage corporate practices that they believe promote environmental stewardship, consumer protection, human rights, and racial or gender diversity. This approach focuses on the company’s management practices and whether they tend towards sustainability and community improvement. Some SRIs avoid businesses perceived to have negative social effects such as alcohol, tobacco, fast food, gambling, pornography, weapons, fossil fuel production, or the military. There is evidence that a focus on this approach can improve returns, whereas there is no evidence for investing success from investing purely on social values alone. SRI is the practice of thoughtfully investing in assets that align with an individual or group’s moral compass. The areas of concern recognized by the SRI practitioners are sometimes summarized under the heading of ESG issues: environment, social justice, and corporate governance.
Socially responsible investing is one of several related concepts and approaches that influence and, in some cases, govern how asset managers invest portfolios. The main idea behind SRI is that invested money can do more than generate returns for an investor: It can also create a positive impact in the world. The term “socially responsible investing” sometimes narrowly refers to practices that seek to avoid harm by screening companies included in an investment portfolio. SRI tends to go by many names, including values-based investing, sustainable investing, and ethical investing. However, the term is also used more broadly to include more proactive practices such as impact investing, shareholder advocacy, and community investing.