Nowadays, people are more and more aware of the current world’s problems and they appreciate the initiatives which work to solve them and have a good impact on the society. The world’s wellbeing has become our common interest. In such circumstances, also investing turns out to be a good way to show what we care about and what we want to improve. Now, not only the return in the shape of money is the investing motivator, but also the positive impact the investment can have on the world.
Socially Responsible Investing: what is it?
Socially Responsible Investing (SRI) – also known as “sustainable”, “ethical”, “green”, “socially conscious” or “mission” – is the kind of investing which is led by an investor’s belief that something has a good influence on the things he or she cares about. This type of investment can be done in 3 ways:
- By ESG investing. It means choosing those companies and governments to invest in, which have environmental, social or governance concerns similar to those of the investor.
- By shareholder advocacy. In this case socially responsible investor’s aim is to put pressure on a corporation so that it becomes more socially responsible in its activities. It can be done by dialogues, educating the public, engaging media or filling resolutions for shareholders’ vote.
- By community investing. This type of SRI is intensively growing in popularity. Here the capital goes to the communities (both in the U.S. and abroad) which are poorer and cannot usually count on the cooperation with the traditional lending institutions. This kind of investing helps not only in the area of income and investment capital, but also provides community services
like healthcare or education.
SRI means investing in stocks or bonds of those companies which perform, support or disapprove of certain actions. In order to check whether a company can be considered in the socially responsible investing there are three screening methods:
- The negative screen – this could be a fact that company consciously does not invest in a certain sector (for example tobacco).
- The positive screen – companies which are engaged in “green” actions (solar/wind power usage).
- The restricted screen – since corporations are often diversified, SRI fund managers utilize the restricted screen in filtration.
Investors have proved to be sensitive to the social problems as the popularity of the Socially Responsible Investing has grown by 22% in the last 2 years. If you decide to invest in SRI you have a few options to choose between. The most common are mutual funds. Parnassus, GuideStone Funds, and Calvert are the biggest fund companies. Also Exchange Traded Funds have recently appeared in SRI format and apart from this, you can check Powershares or iShares too. The important thing is to have some theoretical knowledge before investing. One of the sources of some information is surely the internet, there are also a few useful books in the topic, for example “The Complete Idiot’s Guide to Socially Responsible Investing” or “Socially Responsible Investing for Dummies”. But if you definitely do not feel confident enough to do it on your own, you can ask an advisor for a necessary help.