With a large variety of investment opportunities available, it can be quite difficult to decide where to invest your money. There are many aspects to consider, including the return, dividends, risk, inflation, taxes and diversification.
However, there are some investors who purposely choose to make it even more complicated. Today, people are becoming more conscious of how their actions might affect the future of the planet. Therefore, when choosing stocks to invest in, they don’t only think about how financially stable a company is, but also care whether it strives to make the world a better place.
Here, we discuss what socially responsible investing really is and how you can become a socially responsible investor yourself.
What is socially responsible investing?
Socially responsible investing, or SRI, is an investment strategy that has been gaining popularity over the past 20 years. An investment is considered socially responsible owing to the nature of the business the company performs. It is supposed to not only bring a financial return, but also social and environmental good.
The three main factors that underlie the measurement of the sustainability and ethical impact of investment are sometimes summarised under the heading of ESG issues: environment, social justice and corporate governance.
Simply put, SRI is an investment strategy that seeks both financial return and social good. Many involved in SRI investing avoid companies perceived to have negative social effects, such as fast food, alcohol, tobacco, gambling, weapons, pornography and fossil fuel production.
Socially responsible investors choose to stick to the companies that do their business in positive and thoughtful ways. Although the majority of investors aren’t socially responsible yet, their number is continuously growing.
According to the US SIF, an organisation for socially responsible investors, the total investments in managed funds that apply SRI strategies has grown to over $6.5 trillion in 2014, compared to $1 trillion in 1995 in the US.
How did it all begin?
The roots of SRI go centuries back to the Religious Society of Friends, also known as the Quakers. Back in 1758, the group’s Philadelphia Yearly Meeting prohibited its members from participating in slave trading or weapons investing, as these were viewed as harmful acts towards society.