For most investors, choosing an investment strategy is based mainly on which investments will give you the best return. This makes smart sense; after all, your goal is to make money.
However, many of today's investors have become increasingly more conscious and concerned with how their investment money is being utilized, and some investors are choosing a broader scope of investment. In addition to building wealth, more investors are turning to socially responsible investing to ensure that their investments are financially, morally, and ethically sound.
What is Socially Responsible Investing?
While the goal of any type of investment is to generate a return for the investor, socially responsible investing looks at more than just the return potential when deciding where to invest – it also factors in a company's social impact. Socially responsible investing (SRI) may take into consideration factors like a company's governance, environmental and/or social policies, political involvement, etc. Socially responsible investing has also been called mission investing, double or triple bottom line investing, ethical investing, sustainable investing, or green investing.
Socially responsible investing currently accounts for an estimated $2.71 trillion out of the $25.1 trillion U.S. investment marketplace, according to the Social Investment Forum.
What is Involved in Socially Responsible Investing?
When researching socially responsible investment opportunities, investors may take one or more of the following approaches:
Investors evaluate opportunities based on social, environmental, and governance criteria. These screens can be positive or negative. Socially responsible investors are generally looking for companies that are both good financial performers that make positive social contributions. Conversely, these investors also tend to avoid companies that are known as being known polluters or otherwise not known for being sensitive to social issues.
Socially responsible investors take an active role in the companies in which they have a stake. Their efforts can include having dialogues with corporations and bringing awareness about issues such as governance, labor practices, discrimination, and more. Socially responsible shareholders may also take a step further and file shareholder resolutions that not only create investor pressure, but can also create media attention, helping to educate the general public about the corporation and their position about the issue at hand.
Traditional financial service institutions underserve many types of communities. Corporation-sponsored community investing directs capital from investors to give these underprivileged communities access to traditional banking products as well as credit, capital, and equity to build their community and provide community services including housing, child care, and health services. This is the fastest growing area of SRI, having grown a staggering 540 percent over the last decade.
At the end of the day, socially responsible investing is all about finding ways to make money and make a positive impact on the world doing it. It requires a little more effort in terms of finding and researching investments, but being morally and ethically smart with your money is a good way to really enjoy your wealth and give back to communities and industries in need.
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