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What is SRI?

What is SRI?

January 02, 2019

Socially responsible investing (SRI) seeks both financial gain and social good. The goal of most participating investors is to positively impact society with their funds. Of course, this is subjective. The set of ethical and moral criteria each investor uses can be quite personal and may vary greatly from one individual to the next. That being said, common themes in SRI include avoiding companies that are associated with addictive substances, social injustice, and environmental harm.

In order to participate in SRI, you must research a company before investing in it to ensure that it aligns with your values and what you believe to be best for society. If you utilize the services of a financial adviser, ask them what their experience with this kind of investing has been like and how they think it could best be incorporated into your portfolio. Most SRI investors screen companies based on their social, environmental and governance positioning. You’ll have to decide which factors that fall into these categories are important to you specifically: fossil fuels, child labor, weapons, employee discrimination, religious association, board diversity? There’s a whole array of issues out there that you can have an impact on.

Some people think community investing instead of socially responsible investing. In this case, they consider whether a company helps its community, or at least doesn’t harm it, before investing. Other causes that become popular in SRI are often based on what’s happening in society at the time. If you traveled back to the 1960s, you’d find socially responsible investors contributing to causes like women’s and civil rights, and even the anti-Vietnam war movement. Martin Luther King, Jr. himself called out companies that were hindering the civil rights movement so that they could be branded as socially irresponsible.

In recent years, as people have become more aware and concerned about climate change, many investors have started to take this into consideration. Those participating in SRI are looking to invest in companies that are doing things like reducing their emissions and using sustainable energy sources while avoiding companies that still support traditional, but environmentally harmful, industries, such as coal mining.

A key component of SRI is shareholder activism. Investors use their rights as an owner in an attempt to influence companies to make socially responsible decisions. It should also be noted that socially responsible investments can be made in individual companies or through a socially conscious mutual fund or exchange-traded fund. You must be cautious, however; just because an investment claims to be socially responsible does not mean that it will also provide a good return. It is possible to achieve both. In fact, that’s the goal! Just research the financial outlook of potential investments before committing.

The issues may change, but SRI remains. In fact, according to a report by Morgan Stanley, the amount of money invested in SRI has increased to over $6.5 trillion in 2018. The year before that, even the chairman of the Ford Foundation’s investment committee stated that they would commit $1 billion to investments that “earn not only attractive financial returns but concrete social returns as well.” It’s not just “bleeding-heart” individuals that are interested in SRI; it’s big businesses and trendy millennials as well. According to the previously mentioned study, it’s actually the majority of millennials that are interested; 84 percent to be exact.

This might be because socially responsible investing not only puts your conscious at ease, but it is proven to be effective. According to a joint study done by Harvard, Stanford and Yale universities, firms with stronger shareholder rights tend to outperform their weaker peers when it comes to price appreciation. If you’re interested in both financial return and societal betterment, please give us a holler, we’d love to talk with you about SRI and more!