Embrace the Future with Socially Responsible Investing
Socially responsible investing (SRI), also known as social investment, is an investment philosophy that emphasizes not only financial returns but also positive social impact. Investors engaged in SRI aim to support companies and funds that demonstrate significant contributions to social justice, environmental sustainability, and community development.
Key Takeaways
- Socially responsible investing is the practice of channeling funds into companies and opportunities that generate positive social impact.
- The popularity of SRI has been increasing, with a growing number of available investment funds and options for retail investors.
- While evaluating SRI opportunities, it’s critical to balance social impact with financial returns.
- Community investing prioritizes returns based on community development and improvement over monetary gain.
- Socially responsible investing often reflects the prevailing societal and political trends.
Understanding Socially Responsible Investment (SRI)
Socially responsible investing, often aligned with principles of conscious capitalism, involves avoiding investments in sectors such as tobacco, alcohol, and gambling. Instead, the focus is placed on supporting companies dedicated to social justice, renewable energy, and clean technology initiatives.
In recent years, SRI has seen substantial growth in popularity, leading to an increased number of mutual funds and exchange-traded funds (ETFs) that cater to these values. By investing in these funds, investors gain diversified exposure across multiple sectors.
The dual objectives of SRI involve realizing positive social impact along with financial returns. Although investing in socially responsible funds requires assessing both the financial health and social ethos of the entities involved, not all investments promising social responsibility guarantee high returns.
One notable trend is the rise of ESG (Environmental, Social, and Governance) investments, which nearly 60% of respondents in a recent survey showed increased interest in due to its growing relevance post-COVID-19.
Special Considerations
SRI aligns closely with current social and political climates, which can introduce specific risks. If the social cause loses support, the investment might incur losses. Thus, many professional investors integrate ESG criteria focusing on a company’s environmental footprint, social impact, and governance practices. Successful companies in this space are often listed in indices like the FTSE4Good Index.
A historical precedent is found in the 1960s–an era of significant social change, where investments targeted organizations that aligned with the times’ progressive movements, such as civil rights and gender equality.
With rising global awareness around climate change, the trend has shifted towards eco-friendly investments. Companies combating climate change by aiming for sustainability and hypothesizing clean energy adoption are attracting more socially conscious capital.
Realizing Change: Examples of Socially Responsible Investing
Community Investing
Community investing stands out as a prime example of SRI. It involves directing funds to institutions and organizations committed to community betterment, often solving disenfranchised populations’ financial struggles. Investments are utilized to operate initiatives like affordable housing, enhancing economic autonomy, and reducing reliance on government aid.
Making an Impact: Areas for Socially Responsible Investments
SRI opportunities can be found in:
- Individual Companies: Seek out businesses demonstrating strong social responsibility practices.
- Mutual Funds/ETFs: Choose socially conscious options providing diversified exposure to various socially responsible ventures.
Understanding ESG
ESG–Environmental, Social, and Governance–reflects crucial aspects investors evaluate in aligning their financial contributions towards responsible and sustainable practices. The surge in ESG investments underscores growing consumer consciousness towards supporting such enterprises.
Leading Socially Responsible Bond ETFs
Noteworthy socially responsible bond ETFs include:
- VanEck Investment Grade Floating Rate ETF (FLTR)
- SPDR Bloomberg Investment Grade Floating Rate ETF (FLRN)
- iShares Floating Rate Bond ETF (FLOT)
By opting for these funds, investors contribute to positive social change while potentially achieving favorable returns, thus transforming the landscape of modern investing by aligning core values with financial growth.
Related Terms: Corporate Social Responsibility, Ethical Investing, Sustainability, Impact Investing.
References
- Moody’s Investors Service, Inc. “Research Announcement: Moody’s - ESG Investing a Boon for Asset Managers as Product Skepticism Diminishes”.
- U.S. Securities and Exchange Commission. “Environmental, Social and Governance (ESG) Funds – Investor Bulletin”.
- Morningstar. “Sustainable Index Funds Produce Strong Gains in 2021”.
