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What Is Socially Responsible Investing (SRI) and How to Get Started


Understanding Socially Responsible Investing (SRI)

Socially Responsible Investing (SRI) is a strategy that considers both financial returns and societal or environmental impacts. Investors who practice SRI take into account factors that reflect their values, such as ethical business practices, environmental sustainability, diversity, and corporate social responsibility. SRI is aimed at creating positive social impact, while still seeking to achieve market-rate financial returns.

SRI has been around for a few decades, but it has gained more attention and popularity in recent years as more people are seeking investment opportunities that align with their values and beliefs. According to the US SIF Foundation, sustainable and responsible investing enjoyed impressive growth in recent years, with about $17 trillion invested in SRI assets under management in the US. This type of investment approach can be applied to a variety of investment vehicles, including mutual funds, ETFs, and individual stocks.

Benefits of Socially Responsible Investing

There are several benefits to socially responsible investing. Here are some of the most popular:

  • SRI provides a way for investors to align their investment portfolio with their values and beliefs. For example, someone who is passionate about climate action may prefer to invest in companies that are focused on renewable energy or reducing carbon emissions.
  • SRI can help investors avoid companies that have poor environmental or social records or that are engaging in practices that they find unethical.
  • SRI has been associated with financial performance that is similar to or better than the market, dispelling the myth that SRI necessarily comes at the expense of financial returns.
  • SRI can encourage companies to act more sustainably and responsibly, as investors put pressure on them to consider non-financial factors in their decision-making processes.

How to Get Started with Socially Responsible Investing

Here are some steps to get started with socially responsible investing:

  1. Do your research and identify companies that align with your values and beliefs. Consider factors like environmental impact, social issues, human rights, and corporate governance when evaluating companies.
  2. Choose your investment vehicle. You can invest in SRI through mutual funds, ETFs, individual stocks, or other vehicles. Do your research on each option and choose the one that aligns best with your goals and values.
  3. Consider diversification. As with any investment strategy, it’s important to diversify your portfolio to manage risk. You can achieve diversification through a mix of asset classes and sectors.
  4. Monitor your investments. Keep an eye on your investments to ensure they continue to align with your values and goals. Consider working with a financial advisor who specializes in SRI if you need help.

Frequently Asked Questions About Socially Responsible Investing

What kind of investors are best suited for SRI?

SRI is best suited for investors who are passionate about social or environmental issues and who want to align their investment portfolio with their values. It’s important to note that SRI can still achieve financial returns similar to traditional investment strategies, so it can be suitable for investors looking for long-term growth potential too.

Does SRI involve sacrificing financial returns?

No, SRI doesn’t necessarily involve sacrificing financial returns. In fact, one study found that a portfolio of SRI investments performed similarly to a traditional portfolio over a 20-year period. Additionally, some SRI funds have even outperformed the broader market in certain time periods.

Can I still diversify my portfolio if I invest in SRI?

Yes, it’s still important to diversify your portfolio when investing in SRI. This can be accomplished through a mix of asset classes and sectors, much like with any other investment strategy.

Do I have to sacrifice diversification to invest in SRI?

No, you can still achieve diversification when investing in SRI. There are a variety of mutual funds, ETFs, and other investment vehicles that offer SRI options across different sectors and asset classes.

Are there any drawbacks to investing in SRI?

One potential drawback to investing in SRI is that it may be difficult to find funds or companies that align precisely with your values. Additionally, some SRI funds may charge higher fees than traditional funds due to the extra research involved in selecting socially responsible investments.

Is SRI only for individuals, or can businesses invest in it too?

Both individuals and businesses can invest in SRI. In fact, businesses that prioritize social responsibility may prefer to invest in companies that align with their values, in addition to their own corporate practices.

Can I still invest in traditional investments along with SRI?

Yes, you can still invest in traditional investments along with SRI. Many investors choose to have a diverse portfolio that includes both traditional and socially responsible investments.

Can I achieve my financial goals through SRI?

Yes, it’s possible to achieve financial goals through SRI. As with any investment strategy, it’s important to do your research and select investments that make sense for your financial situation and goals.

How do I know if a company is socially responsible?

There are a variety of resources available to help you determine if a company is socially responsible. Look for companies that have a commitment to sustainability, responsible business practices, and transparency in their reporting.

Is SRI more risky than traditional investments?

No, SRI isn’t inherently more risky than traditional investments. As with any investment approach, risk depends on the specific investments chosen and how they are allocated within a portfolio.

What are some examples of socially responsible investments?

Socially responsible investments can include companies that prioritize environmental sustainability, ethical business practices, diversity and inclusion, human rights, and corporate social responsibility. Some examples of SRI investments include renewable energy companies, organic food producers, and companies with high standards for employee treatment and fair labor practices.

Can SRI help influence corporate behavior?

Yes, SRI can help influence corporate behavior by encouraging companies to prioritize social and environmental issues in their decision-making processes. As more investors choose socially responsible investments, companies may feel pressure to adjust their practices to align with those values.

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