Definition of Socially Responsible Investing

What Is Socially Responsible Investing?

Socially responsible investing (SRI) is an investment strategy employed by individuals, corporations, and governments looking for ways to ensure their funds go to support socially responsible firms. The concept goes by names like sustainable investing, impact investing, community investing, ethical investing, and socially-conscious investing; it is a non-financial gauge that is used when selecting various investment options that takes into account factors such as environmental, social, and ethical values.

The types of practices investors try to avoid when selecting securities based on socially responsible principles include:

  • Companies that sell or promote addictive substances like tobacco, alcohol, or gambling
  • Organizations with a history of polluting the environment
  • Businesses that refuse to take humane labor practices seriously
  • Firms that trade in weapons or support international military action

Though some mutual funds tout themselves as socially responsible, it is generally recommended that social investors look for third-party verified SRI funds to ensure that the social claims are true and accurate. Lists like Global100, SocialFunds, The FTSE4Good Index Series, and those maintained by the Social Investment Forum provide a start for socially responsible investors.

There has been some concern raised about the financial returns achieved with socially responsible investments, with critics claiming that interest rates are typically lower, though this is generally determined on a case-by-case basis.

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