In today’s world, it can seem like everything comes with some kind of social or environmental strings attached.
From the food we eat to the clothes we wear to the investments we make, people are paying more attention than ever before to how companies manage their social and environmental impact.
As a result, fund managers are shifting their focus towards socially responsible companies through socially responsible investment strategies.
But what exactly does this mean? How do you know if an investment falls into this category? And how can you use these principles to inform your own stock-buying strategies?
Keep reading to learn more about socially responsible investing and its implications for your financial future!
What Is Socially Responsible Investing?
Most people associate socially responsible investing with stocks from companies that are sustainable, ethically conscious, and/or generate revenues from the “green” economy. While these are all reasonable assumptions, they aren’t the only way to define socially responsible investing.
Socially responsible investing (SRI) is a type of investing that requires investors to consider not only financial performance but also an organization’s impact on society and the environment when making investment decisions.
In other words, SRI involves buying stocks from companies that support positive social and environmental causes, rather than simply focusing on profitability alone.
While the term socially responsible investing is relatively new, the concept behind it isn’t new at all. Early investors such as Warren Buffett have always advocated for a long-term view on investing, with an eye towards holding companies that can serve as positive contributors to society over the long haul.
How to Determine if a Company is Socially Responsible
One of the first steps in socially responsible investing is simply determining whether or not a company is socially responsible. There is no one criterion that all SRI companies share—instead, socially responsible investors are looking at a wide variety of factors in each company’s operations.
Some examples of criteria that socially responsible investors might consider include:
- Whether or not a company actively supports political or social causes (such as through philanthropy or lobbying)
- Whether or not a company has a positive impact on the environment (for example, through innovative sustainability programs or efforts to reduce carbon emissions)
- The payment practices of a company—for example, is the company involved in any lawsuits or investigations related to unfair payment practices?
While socially responsible investing is a largely subjective strategy, there are several online tools and resources available to help investors determine which companies are socially responsible and which ones aren’t. Simply Google “filter for socially responsible companies” and you’ll find tools that allow you to search for stocks that meet your criteria.
Types of SRI Strategies
There are several different types of socially responsible investing strategies, each of which has its own merits. For example, you might purchase shares of a socially responsible exchange-traded fund that tracks an index of environmentally sustainable companies.
Alternatively, you might invest in so-called special-purpose funds and look for funds that focus on certain industries or regions that are traditionally underserved by investors.
Note that there are a variety of ways to implement a socially responsible investing strategy. There really is no one-size-fits-all approach. Different investors have different goals, risk profiles, and financial situations, so what’s right for one investor may not be right for you.
How Socially Responsible Investing Helps Society
If you’re investing in socially responsible companies, then the companies you’re investing in are probably contributing to the economy in a positive way. This can go a long way towards restoring investor confidence in the market following a recession and helping to stimulate economic growth.
However, social impact investing companies are creating even more than just jobs for workers and tax revenue for governments. They are creating a more inclusive economy that provides an opportunity for everyone regardless of their socio-economic situation.
This is especially important because the economic system we have now gives the majority of its benefits to a small portion of the population.
Socially responsible investing is not just about supporting a certain sector or investing in companies that have a positive impact. It is also about diversifying the economy so that it has the resilience to withstand challenges.
Benefits of Socially Responsible Investments
There are numerous benefits to socially responsible investing. For one, it can help you sleep better at night by ensuring that your investments align with your values and reflect your ideals as a person.
More importantly for you as an investor, socially responsible investing can also reap financial benefits. For example, many socially responsible companies are also financially responsible, which can help boost investment returns over the long term.
Moreover, socially responsible investing can also lead to other rewards, such as increased employee engagement and productivity, an improved reputation and brand image, and strengthened ties between communities and businesses.
The Bottom Line: Is Socially Responsible Investing Right for You?
There’s no denying that the world is a mess right now. From political unrest to natural disasters and everything in between, it certainly feels like society is in a state of disarray.
As individuals, we can’t do much to change this, but we can take steps to protect ourselves from the effects of these challenges. Investing in socially responsible companies is one way to protect yourself and make sure that you and your family are financially prepared for whatever comes next.
Now, there are many factors to consider when investing in socially responsible companies. However, as we’ve seen, there are also many benefits to socially responsible investing.
Ultimately, socially responsible investing is not meant to be a one-size-fits-all strategy. It’s meant to be a strategy that caters to your specific ideas and values as an investor.
If you’re currently investing in companies that support causes or industries that you find morally reprehensible, then socially responsible investing is right for you. By investing in companies that meet your ideals and reflect the kinds of organizations that you want to support, you can rest assured that your investments are helping to build a better world.
After all, socially responsible investing is not just a moral decision—it’s a pragmatic one, too.