In today’s dynamic stock investment scenario, various new terms have been introduced to encourage stock investors and traders to focus on their general profit. One such term is Socially Responsible Investing (SRI). If you have heard this term for the first time, you are not new as there are many like you. If you want to What is Socially Responsible Investing, continue reading the following portion.
What is Socially Responsible Investing?
Socially responsible investment, or SRI, refers to an investment approach that takes into account not only the financial earnings from an investment but also its influence on environmental, moral or social evolution.
It involves the determination of different projects by possible stock investors to invest the hard-earned money. This is where most stock investors consider things such as diversification, rate of return, dividends, taxes, inflation, and risks.
In the present context, socially responsible investors are going beyond the conventional approach. Besides understanding the pointers given above, investors look at the point on how a specific investment affects society in a positive manner.
What is ESG?
E refers to Environment. E aspects include climate modification, water consumption, air pollution, and waste recycling.
S stands for Social. These factors include health & safety, labor privileges, supply chain levels, and customer rights protection.
G means Governance. They include corporate governance, corporate ethics, corruption, and employee pay.
Background of Socially Responsible Investment
The socially responsible investing theme may have kicked off with the Quakers, a cluster of people who became a part of the Religious Society of Friends during the 1700s. Then, the Quakers declined to get into slave trading or the act of buying and selling people.
Another protuberant advocate of the SRI strategy was John Wesley. Wesley, popularly a man of the cloth, announced that getting money at the expense of another person’s welfare was considered wickedness. He also encouraged his followers to avoid getting into the acts of gambling and supporting businesses, which used toxic substances.
For longer periods, socially responsible investors evaded investing in then known “sin industries” – liquor, tobacco, and gambling. However, the investment trend grew in the 1960s even before upcoming IPO investment trend(currently trending in stock market), when people started investing in ventures that nurtured civil rights too.
Options available to make Socially Responsible Investments
An SRI is inclusive of several other types of investments, the resemblance between them is that they all tend to leave a positive impact on society. Particularly, investors willing to do such investments concentrate on three important aspects – environmental, social, and corporate governance (ESG). Both the stock investors and the best stock broker in India rely on these three factors to evaluate the sustainability or social influence of an investment.
At present, there are different approaches used by socially responsible investors to ensure their ventures meet social objectives, specifically:
- Negative Airing
As mentioned in the name, the method involves checking a business’s activities and products and/or services before moving to invest in it. So, if a possible investor finds that a specific company produces injurious products – such as liquor – or involves in unprincipled practices, then they won’t likely to invest their money into it.
- Positive Investing
In this case, an investor prefers to invest in firms whose practices they think are acceptable. For instance, if a person actually cares for the environment, he or she would love to invest in companies that pay heed to nature in each & every activity they are involved in. After this, their portfolio will possibly include investments they’ve made in greener power.
According to the top 10 stock brokers in India, it can also refer that the only businesses they’re ready to collaborate with are those that stick to supportable practices. Some examples of green business processes include:
- Having a recycling program in place
- Water conservation
- Buying energy-efficient equipment
- Applying eco-friendly work practices, such as asking people to switch off lights in areas that are not in use.
- Community Investing
If an investor wishes to become a Socially Responsible Investor, community investing is undoubtedly one of the most preferred approaches. It involves putting money in ventures that encourage local communities on financial fronts. For example, projects that use easily available capital from the community and develop opportunities for the underprivileged.
Kinds of Socially Responsible Investments
At present, there are various kinds of socially responsible investments available for stock investors including:
- Mutual Funds and Exchange-Traded Funds (ETFs)
Various mutual funds and ETFs stock to the ESG approach. If an investor is willing to invest in any of these funds, go to the SIF website, which summaries over 100 socially responsible mutual funds. In addition, they can also consider various socially responsible ETFs on the internet.
- Micro-finance
Another approach probable investors can take to do socially-sound investments is by giving micro-loans or low-key loans to new businesses. They can search for ventures in developing nations that offer financial support.
- Community Investments
An investor can also put their money straight into ventures that are made to improve local communities. A quick and simple to do such an investment is to donate to community development financial institutions (CDFIs).
The Conclusion
Socially responsible investment (SRI) refers to a kind of investment that attains financial advance and social/ environmental objectives. Implementing SRI is not that harder. In fact, it’s not any different from conventional investing. The only thing you need to do is to incorporate a supplementary investment measure that enables you to focus on investments that affect society positively.