Socially Responsible Investing: The Basics
Updated: Sep 2, 2022
More and more, people want to invest while making a difference. Responsible investing has taken off in recent years, and many Americans now invest in funds called Socially Responsible Investments. These funds do not invest in industries that have a poor social or environmental impact or negatively impact public welfare. For example, SRI funds don’t include investments in the tobacco, arms, or alcohol industries.
What is Socially Responsible Investment?
Socially responsible investment doesn't simply mean avoiding certain types of industries that have a negative impact but also investing in industries and sectors that do a lot of good. For instance, SRI funds may invest in greener technologies. These funds may invest in companies that are promoting wind or solar power technology, or in companies that have a proven track record for bettering areas in the developing world that they source from or manufacture in.
What Kinds of Companies do SRIs Invest in?
SRI funds may invest in companies that investors believe have a history of focusing on the public good. That means companies with a good environmental record or a history of protecting consumer rights and upholding civil and human rights. The approach is to invest in those companies and countries that promote these ideas and philosophies while avoiding companies whose products and services contribute to environmental degradation, deterioration of public health, or violations of human rights.
Bear in mind also that an SRI fund may invest in companies that are highly diversified. Therefore, you may have one sector of a corporation that invests in industries that may be engaged in activities you find offensive, but because the overall contribution from that sector is so minor, the SRI may go ahead and invest in that company.
The most effective and most acceptable way to invest in a socially responsible manner is to invest through mutual funds or ETFs. There are many major funds that now have an SRI format, and these funds are becoming increasingly popular. If you want to make socially conscionable and sustainable investments that are in accordance with your beliefs, speak with a financial adviser who can help guide you in the right direction.
Socially responsible investing is a way of making sure that your portfolio not only makes you money but also helps you do your part to make the world just a little bit better. By investing in companies that are contributing to social and environmental good, you will have an effective voice and can ensure that your voice is heard.
Our advisors would be happy to help you with investing ethically!
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