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Introduction to Socially Responsible Investing (SRI)

Changemakers Financial simplifies socially responsible investing by offering accessible, value-aligned portfolios that promise both positive impact and financial returns.

What is Socially Responsible Investing?

Socially Responsible Investing (SRI) is a disciplined investment approach that considers not only financial returns but also the social and environmental impact of investments.

It’s a strategy that integrates personal values and societal concerns with investment decisions. SRI is often used interchangeably with sustainable, ethical, and green investing.

What is socially responsible investing

Key Takeaways

  • Socially responsible investing, often referred to as SRI, is a dual-purpose strategy focused on driving positive societal impact alongside financial gains.

  • Known interchangeably as sustainable or impact investing, SRI encompasses a broad spectrum of ethical investment practices.

  • The cost of engaging in SRI has decreased compared to historical figures, making it more accessible than ever before.

Understanding Socially Responsible Investment (SRI)

Socially responsible investing also termed conscious capitalism, prioritizes avoiding companies associated with addictive products or services such as alcohol, gambling, and tobacco, and instead favours those committed to social justice, environmental sustainability, and clean technology initiatives.

The trend of ethical investing has seen a significant uptick, with a plethora of new funds and collective investment schemes emerging for individual investors.

Vehicles like mutual funds and ETFs offer the benefit of diversifying across numerous companies and sectors through a singular investment.

Nevertheless, it's crucial for investors to scrutinize fund prospectuses to understand the specific strategies fund managers employ and the potential for financial returns.

Socially responsible investing is driven by two core objectives: creating a social impact and achieving financial profitability.

These aims may not always align; a label of social responsibility doesn't guarantee lucrative returns, nor does a promising financial forecast necessarily reflect a company's ethical stance.

Investors are advised to carefully evaluate both the economic prospects and the social merits of their investments.

The Evolution of SRI

Socially Responsible Investing has a rich history that dates back several centuries. Initially, it was driven by religious values, with investors avoiding "sin stocks" that contradicted their moral beliefs. Over time, the focus of SRI has expanded to include a wide range of ethical concerns.

Historical Milestones

  • 18th Century: Religious groups like the Quakers refused to invest in the slave trade.
  • 1960s: The civil rights movement in the U.S. led investors to pull funds from companies supporting segregation.
  • 1980s: Activists encourage divestment from companies operating in apartheid South Africa.
  • 21st Century: SRI becomes mainstream, with investors focusing on global issues like climate change and social inequality.

Modern Socially Responsible Investing

Today, SRI is a dynamic and evolving field that reflects the complexities of modern ethical concerns. It encompasses a range of strategies, from divesting from fossil fuels to investing in renewable energy and supporting companies with strong labor practices.

How Does Socially Responsible Investing Work?

SRI works by applying a set of screens or filters to investment choices based on certain ethical guidelines. These screens can be negative, excluding certain types of investments, or positive, seeking out companies that actively promote good.

Negative Screening

This is the traditional approach to SRI, where investors avoid companies involved in activities they find objectionable, such as tobacco production, weapons manufacturing, or fossil fuel extraction.

Positive Screening

Investors using positive screening look for companies that are making a positive impact on the world, such as those involved in clean energy, sustainable agriculture, or social justice.

Community Investing

This aspect of SRI focuses on investing in projects or institutions that will benefit underserved communities, providing them with access to capital for development.

The Impact of Socially Responsible Investing

The impact of SRI is significant and multifaceted.

It has the potential to influence corporate behaviors, drive social change, and lead to the development of more sustainable economies.

Corporate Influence

By choosing where to invest their money, SRI investors can influence corporate policies and practices, encouraging companies to improve their environmental and social performance.

Social Change

SRI can drive social change by providing capital to companies and projects that address social issues, such as poverty, education, and healthcare.

Sustainable Economies

By supporting companies that prioritize sustainability, SRI contributes to the development of economies that are more resilient, equitable, and environmentally sound.

Examples of Socially Responsible Investing

Green Bonds Investment

Green bonds are a type of fixed-income instrument that is specifically earmarked to raise money for climate and environmental projects.

These bonds are typically asset-linked and backed by the issuer's balance sheet, and they are designed to encourage sustainability and to support climate-related or other types of special environmental projects.

Community Investing

Community investing directs capital from investors to communities that are underserved by traditional financial services.

It provides access to credit, equity, capital, and basic banking products that these communities would otherwise lack.

An example is investing in community development financial institutions (CDFIs) that provide financial services in low-income areas.

U.S. Based

Sustainable and Responsible Equity Funds

These are mutual funds or exchange-traded funds (ETFs) that invest in companies with strong environmental, social, and governance (ESG) practices.

An example is the Parnassus Core Equity Fund, which selects companies with long-term competitive advantages and relevancy, high ESG performance, and quality management teams.

Socially Responsible Exchange-Traded Funds (ETFs)

Socially responsible ETFs are funds that apply ESG criteria to their investment process.

An example is the iShares MSCI USA ESG Select ETF, which aims to track the investment results of an index composed of U.S. companies that have positive ESG characteristics.

7th Generation Thinking

Why Choose Socially Responsible Investing?

Opting for Socially Responsible Investing is a powerful statement about an investor's personal ethos and their desire to influence the world positively through their financial choices.

Aligning Values with Investments

In the realm of SRI, the adage "put your money where your mouth is" takes on a literal meaning.

Investors are increasingly conscious of the fact that their financial assets can be an extension of their personal beliefs and values.

By choosing SRI, they ensure that their capital is not inadvertently supporting industries or companies that engage in practices they oppose, such as environmental degradation, poor labor conditions, or unethical business operations.

Instead, their investments are directed towards companies that are not only profitable but also contribute to the welfare of people and the planet.

This alignment of values and investments is not just about avoiding harm; it's about actively choosing to support industries that are making a positive difference.

Contributing to Positive Change

SRI stands at the intersection of altruism and pragmatism.

It offers a tangible way for investors to drive progress in areas they care about, such as renewable energy, sustainable agriculture, healthcare, education, and social justice.

By investing in companies and funds that prioritize these areas, investors can play a role in addressing some of the most pressing challenges of our time.

The capital provided through SRI can help fund innovative solutions to environmental issues, support companies that are creating sustainable products, and back businesses that are committed to fair and ethical practices.

In this way, SRI becomes a catalyst for positive change, leveraging the power of the financial markets to foster a more sustainable and equitable world.

Financial Returns

The financial aspect of SRI is equally compelling. There is a growing body of evidence suggesting that companies with strong environmental, social, and governance (ESG) practices can outperform their less responsible counterparts in the long run.

These companies are often better positioned to navigate the risks and opportunities presented by a rapidly changing global landscape.

They may benefit from regulatory support, consumer goodwill, and operational efficiencies that arise from sustainable practices.

As a result, SRI portfolios have the potential to deliver competitive, and in some cases, superior financial returns compared to traditional investments.

This challenges the outdated notion that ethical considerations and profitability are mutually exclusive, showcasing that it is possible to achieve financial success without sacrificing one's values.

Historically, SRI funds were known for higher fees compared to traditional funds, but this landscape is changing.

Data from Morningstar in 2019 shows that out of over 40 diversified ETFs adhering to ESG criteria, 13 boasted notably low expense ratios ranging from 0.09% to 0.2% annually.

While it's true that some SRI funds come with a heftier price tag, there are also cost-effective options available.

Take, for instance, the Fidelity U.S. Sustainability Index Fund (FITLX), which offers an expense ratio of just 0.11% and scores an above-average 50 on the portfolio sustainability scale.

This is notably lower than the 2019 year-end average of 0.13% for the asset-weighted expense ratio across all passive funds, as reported by Morningstar, making Fidelity's sustainable fund a competitively priced choice.

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Crafting a Socially Conscious Investment Strategy

Embarking on the journey of ethical investing need not be a daunting task. With a clear understanding of your core values, you can begin channeling your investment funds towards positive impact. Here's a step-by-step guide to assembling a socially responsible investment (SRI) portfolio:

Determine Your Level of Involvement When it comes to curating an ethical portfolio, you have options. You can take the reins and handpick investments, actively managing them, or you can seek assistance. 

> Self-Directed SRI Approach: If you're keen on ensuring that every company in your portfolio aligns with your unique vision of social responsibility, crafting your own SRI portfolio might be the way to go. If this resonates with you, proceed to the next step.

> Guided SRI Approach: Many investors aim for socially responsible investments but may find the due diligence overwhelming. This is where automated investment services, or robo-advisors, come into play. These platforms utilize sophisticated algorithms to construct and maintain a portfolio tailored to your risk preferences and objectives.

Changemakers Financial simplifies the journey into Socially Responsible Investing (SRI) by offering expertly curated portfolios that align with the values and ethical considerations of conscientious investors.

With a focus on transparency, affordability, and accessibility, Changemakers demystifies the process of SRI, allowing investors to seamlessly integrate their desire for positive societal and environmental impact with their financial goals.


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