Socially responsible investing is the process of selecting assets to buy based on their social impact as well as on their potential financial returns. It is also known as sustainable investing, socially conscious investing, green investing and ethical investing. Socially responsible investing is closely linked to impact investing, which seeks to make tangible positive change.
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This type of investment is characterised by a conscious decision to invest in a company or fund deemed socially responsible. As with any investment, it is also characterised by the desire to make a profit.
Investors typically select companies or funds concerned with social justice, sustainability, green energy, clean technology, and other similar areas.
Socially responsible investing might also be characterised by an avoidance of industries perceived to have a negative societal or environmental impact, such as alcohol, tobacco, oil and gas, fast food or gambling.
Investors might choose to buy stocks and shares in companies that match their values, or that have robust environmental, social and governance (ESG) policies in place. For example, the MSCI United Kingdom SRI Index is a capitalisation-weighted index that only provides exposure to those companies that have outstanding ESG ratings. Another way to invest in a socially responsible way is through mutual funds and exchange-traded funds (ETFs). There are many funds that either explicitly invest in companies pursuing socially responsible endeavours, or that will only invest in companies prioritising ESG factors in their operations.
Responsible investing has always been a concept and many shareholders have tried to use their power to influence the wider world for decades. One famous example is the pressure put on fund managers to avoid investment in South African companies before 1990, which ultimately played a part in ending apartheid.
The concerns of investors with socially responsible aims have historically reflected wider societal issues.
Socially responsible investing is now enjoying more mainstream popularity as investors and government bodies become increasingly interested in ethical behavior.
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