Socially responsible investing: a primer

There are four facets to socially responsible investing.

The following guest post was written by – Dorothy Anderson – a blogger at OVLG. She offers debt advice to people and thinks that it is not always right to consolidate debts.

Did you know you could get a better return through Socially Responsible Investing (SRI)?

When it comes to money, investment plays an integral part. People are now getting inclined towards investments driven by their personal values and this summarizes SRI. SRI was more a movement that can be traced back to the 1970s. In 1980s SRI mutual funds started screening firms focusing on environmental policies and many other social issues. As Wikipedia states…

“In general, socially responsible investors favor corporate practices that promote environmental stewardship, consumer protection, human rights, and diversity. Some (but not all) avoid businesses involved in alcohol, tobacco, gambling, weapons, the military, and/or abortion. The areas of concern recognized by the SRI industry can be summarized as environment, social justice, and corporate governance (ESG).”

There are four facets when it comes to SRI. Social investors use these strategies for a profitable financial return that has a social perspective.

• Positive investing is a habit of the companies to invest in activities for having an affirmative social effect. Through investment, companies try to bring in a wave of change. As they invest, it expresses their corporate approach. This includes social justice and their stock selection.
• Divesting is another act of erasing stocks from a portfolio. The grounds for removal are based on ethical objectives or business activities.
• Shareholder Activism influences the corporate décor positively. For example, when a management raises issues of concern and there is a voting, this activism gets triggered. This ensures a better management strategy and increases the financial output as well as boosts the condition of the stockholders and employees.
• Negative screening though has a negative note but it removes securities from investment actions. This is again done from a social perspective. You will find that many socially aware investors rule out tobacco company investments.

Investing does not always refer to crisis. For example consolidating debts can ruin your credit file. So this will harm your credit score and will create problems for you in the future. Experimenting with money in this manner can be hazardous. So why not invest for something productive? The Social Investment Forum is a national non-profit organization that supports the concept of SRI and puts that “SRI investors encourage corporations to improve their practices on environmental, social and governance (ESG) issues.” You can also take up stocks individually based on your criteria. There are much better options with banks and credit unions where you could make deposits. You can target those banks that target your communities.

The SRI Myth

There is a myth about SRI. It is believed that SRI distorts your financial health or performance. But did you know you as a social investor you will always get a gamut of options from amongst high performing funds. This comprises various index funds that would be suitable to the market socially. Other suitable options are balanced funds or equity funds that throw light on companies irrespective of its size. There is another matter of concern here. It is known as shareholder activism. This activism is a result of the efforts of rising investors who try to affect the corporate behavioral trends with their status. This gives impetus to public education, calls for media coverage and their process of dialogue as well as filing shareholder exerts a certain amount of pressure on corporate stalwarts. So this is one of the most effective tools to synchronize corporate and social responsibility.

You could also invest in a community than targeting any particular institution. This would generate a far greater social impact. “Microlending now plays a key role in the growth and success of new businesses in underdeveloped rural towns and cities in Africa, Asia, Latin America, and South America,” as put by Jean Pogge, from the Social Investment Forum. When you invest in a community, the money starts working. These communities will utilize your money for various social issues such as removing inequalities, capital distribution, green business activities and other developing causes. Thinking beyond the conventions can make you socially responsible even with your investments. All you need to do is take the initiative and spread the word to make the world a better place to live. Here Poe Paul’s words can be quoted…

“If you want peace, work for justice.”

Become a community investor and make your money work for justice, peace and sustainability.

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