Socially responsible investment (SRI), otherwise known as ethical investment, integrates environmental, ethical, or social criteria into your financial investment decisions. While conventional investment is focused on financial risk and return on investment, a socially responsible investment includes a broader spectrum.
SRI is concerned with the nature of the source they are investing in, not just the size of the possible financial return. It’s a form of investment that allows you to boost your assets while making a difference in society. Making responsible investments will only need you to align your investment with a cause you are passionate about.
Here are ways you can positively impact humankind through promoting socially responsible investments.
How To Make Socially Responsible Investments
There are three key aspects to focus on when making socially responsible investments, environmental, social, and corporate governance. Investors use these three factors to assess an investment’s sustainability and social impact. Here are three approaches to get you started:
1. Negative Screening
Negative screening is when an investor screens a company’s practices, services, and products before investing. Should the investor discover that the company produces products that are harmful to humankind or has unethical practices, they automatically opt out of putting their money into it.
2. Positive Investing
Positive investing is a technique where investors choose to invest in organizations whose practices they approve. For instance, consider an investor passionate about environmental awareness and conservation. Through this technique, their portfolio would compromise on investments made in green energy.
It also means they are only willing to collaborate and invest in companies that integrate sustainable practices. For instance:
- Purchasing energy-efficient equipment
- Conserving water
- Enforcing eco-friendly work policies
- Recycling programs at the workplace
3. Community Investing
Community investing is an excellent approach to socially responsible investing; it’s an investment in humankind. It involves putting your money into projects that will economically boost local communities. For instance, projects utilizing the resources that are already readily available in the community and creating work opportunities for the disadvantaged.
Types Of Socially Responsible Investments
Aside from directly funding a business, there are several other ways to influence and participate in socially responsible investments. Here is a discussion of each.
1. Exchange Traded Funds (ETF) and Mutual Funds
If you are still determining the company to invest in, consider exchange-traded and mutual funds focused on socially responsible investing. Money managers operate the funds such as bonds, stocks, and commodities. The managers will make the investments on your behalf based on the given criteria.
For example, the managers may invest only in companies that support education, fight poverty, or donate to domestic violence. The primary difference between exchange-traded and mutual funds is that ETFs can be bought or sold like regular stock on the stock exchange market.
Microloans, also known as micro-credit, refer to a program some financial bodies offer to disadvantaged entrepreneurs. The loans are offered in lower lump sums that have lower interest rates. Their nature makes them more affordable than traditional loans.
You can make a socially-sound investment by offering small loans to startups. You can also look for businesses in developing countries that offer similar financial assistance and invest in them.
3. Invest in Humankind Through Community Projects
You can also invest money directly into projects benefiting communities as an investor. One of the most straightforward approaches to this is investing in community development financial institutions (CDFIs). This investment generally involves supporting organizations offering financial assistance to needy people.
For example, you can put money into agency bonds from governmental agencies that provide affordable housing to communities. Alternatively, you can open accounts at credit unions or banks that lend money to low-income areas.
If you prefer to cut out the middleman, consider purchasing real estate within these impoverished communities and setting reasonable rent. You can also fund daycare expansions for low-income communities.
Why Should You Promote Socially Responsible Investing?
Unlike other forms of philanthropy, SRI encourages investors to fund causes and help them succeed while offering a financial incentive. Sure, money might not always be the primary motive of the investment, but it is still a rewarding kickback.
When inventors move to SRI, it also influences businesses worldwide to tune their practices and operation to social responsibility.
How to Build Your SRI Investment Portfolio
Creating your SRI portfolio does not have to be a difficult and strenuous process. Provided you are aware of the essential values to you, you can begin using your investment funds to help humankind. Here are some simple steps to guide you.
- Decide if you need help – If you want maximum assurance that every company you invest in supports your SRI, then you may opt to create the portfolio yourself. However, while many want to make socially responsible investments, it takes some work to determine if each company is genuinely committed to ethical practices. If you are on this boat that may need more time to scout individually, seek the services of a financial advisor or robo-advisor.
- Open your investing account – If you have decided to handle the process yourself, start by opening a brokerage account. These accounts are where people buy and make investments. Some brokerages will have more solid SRI offerings than others. Use sites that have a screener tool to make it easier to locate suitable options for your investment portfolio.
- Outline the issues that are important to you – This is one of the most crucial steps. Write down precisely what you are looking for in your socially responsible investment. What are your deal-breakers? For instance, would you invest in gun manufacturing?
Are you okay with owning stock in companies with lower scores in environmental awareness but with a female majority on their board of directors? Narrowing down on the industries you are unwilling to support will make the whole process easier.
- Carefully research your investments – An easy way to assess the social responsibility consciousness of a company is by reviewing their ratings from independent research bodies.
Promote Socially Responsible Investing
Socially responsible investments achieve both financial and environmental/social goals. Implementing and promoting socially responsible investing is straightforward and similar to traditional investing. The only difference is that you are adding a criterion that enables you to only focus on collaborations and investments that will positively impact society. Make the change today!