Table of Contents
- What Is a Socially Responsible Investment (SRI)?
- Key Takeaways on SRI
- Understanding Socially Responsible Investment (SRI)
- Important Demand Trends
- Special Considerations for SRI
- Promoting Racial Justice Through Investing
- Example of Socially Responsible Investing
- Where Can You Make Socially Responsible Investments?
- What Does ESG Represent?
- Top Socially Responsible Bond ETFs
What Is a Socially Responsible Investment (SRI)?
Let me explain what socially responsible investing, or SRI, really means. It's an approach where you invest in companies or funds because of the positive social aspects of their business. You might hear it called social investment or socially conscious investing. You can put your money into individual companies that demonstrate good social value, or opt for a socially conscious mutual fund or exchange-traded fund (ETF).
Key Takeaways on SRI
When I think about the essentials of SRI, it's the practice of directing your money toward companies and funds that create positive social impacts. This type of investing has seen a surge in popularity lately. Remember, these are still investments, so you need to evaluate their potential returns carefully. There's also community investing, where success is gauged by community benefits rather than just financial gains. Overall, SRI often reflects the current political and social environment.
Understanding Socially Responsible Investment (SRI)
SRI, sometimes referred to as conscious capitalism, means avoiding investments in companies that deal in addictive substances or activities like alcohol, gambling, and tobacco. Instead, you seek out those involved in social justice, environmental sustainability, and alternative energy or clean technology. In recent years, this has become a mainstream practice with many new funds and investment options available to everyday investors. Mutual funds and ETFs are particularly useful because they let you invest in multiple companies across sectors with one purchase. That said, you should always review fund prospectuses to understand the managers' philosophies and the investments' profitability potential.
The dual goals here are social impact and financial gain, but they don't always align perfectly. An investment might claim to be socially responsible without guaranteeing strong returns, and high returns don't ensure social consciousness. As an investor, you have to assess both the financial prospects and the social value.
Important Demand Trends
Demand for ESG investments spiked in 2020. In a survey by Investopedia and Treehugger, nearly 60% of respondents showed increased interest in ESG, and 19% had already incorporated ESG standards into their portfolios.
Special Considerations for SRI
SRI tends to follow the prevailing political and social trends, which introduces risk. If a social value loses popularity, related investments could suffer. That's why professionals often view SRI through environmental, social, and governance (ESG) factors, focusing on company practices for sustainability and community improvement. Indexes like FTSE4Good track such companies. Evidence suggests this ESG approach can enhance returns, unlike investing based solely on social values.
For instance, in the 1960s, investors supported causes like women's rights, civil rights, and anti-war efforts, with figures like Martin Luther King Jr. highlighting irresponsible companies. Today, with growing awareness of climate change, SRI favors companies reducing emissions or investing in clean energy, while avoiding sectors like coal mining due to their environmental harm.
Promoting Racial Justice Through Investing
One specific form of SRI is racial justice investing, which aims to use institutional and retail funds to advance equality, inclusion, and anti-racist causes.
Example of Socially Responsible Investing
Consider community investing as a clear example. This directs funds to organizations with a history of social responsibility that can't access traditional financing from banks. These funds support community services like affordable housing and loans, aiming to boost the community's quality of life and reduce reliance on government aid, which ultimately strengthens the local economy.
Where Can You Make Socially Responsible Investments?
You can invest in individual companies with strong social values or through socially conscious mutual funds or ETFs.
What Does ESG Represent?
ESG stands for environmental, social, and governance—key criteria for investors seeking sustainable and community-focused companies. In 2020, ESG investments gained massive traction.
Top Socially Responsible Bond ETFs
Among the leading ones are the VanEck Investment Grade Floating Rate ETF (FLTR) from VanEck, the SPDR Bloomberg Investment Grade Floating Rate ETF (FLRN) from State Street, and the iShares Floating Rate Bond ETF (FLOT) from BlackRock Financial Management.
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