Socially responsible investing

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Socially responsible investing (SRI), also known as sustainable investing, socially conscious investing, green investing, or ethical investing, is an investment strategy that seeks to consider both financial return and social/environmental good to bring about a positive change.

History[edit | edit source]

The origins of socially responsible investing can be traced back to religious movements. For instance, the Quakers in the 18th century prohibited members from participating in the slave trade. Similarly, John Wesley, one of the founders of Methodism, outlined the concept of "the use of money" in his sermon "The Use of Money," which is considered one of the first written documents advocating for ethical investing.

Principles[edit | edit source]

SRI incorporates various strategies to achieve its goals:

Negative Screening: Excluding companies or industries that do not meet certain ethical criteria, such as tobacco, alcohol, gambling, and weapons.
Positive Screening: Actively selecting companies that are leaders in social responsibility, such as those with strong environmental policies, human rights records, and corporate governance.
Shareholder Advocacy: Using shareholder power to influence corporate behavior through direct engagement, filing shareholder resolutions, and voting on corporate policies.
Community Investing: Directing capital to communities underserved by traditional financial services, often to support microfinance, affordable housing, and small business development.

Types of SRI[edit | edit source]

Environmental, Social, and Governance (ESG) Investing: Focuses on companies that score highly on environmental, social, and governance criteria.
Impact Investing: Investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.
Thematic Investing: Investing in themes or assets specifically related to social, environmental, and governance issues, such as renewable energy, clean technology, and sustainable agriculture.

Performance[edit | edit source]

Studies on the performance of SRI funds have shown mixed results. Some research indicates that SRI funds perform comparably to traditional funds, while others suggest that they may underperform or outperform depending on the market conditions and specific criteria used.

Criticisms[edit | edit source]

Critics of SRI argue that it may limit investment opportunities and potentially lead to lower returns. Others believe that the criteria for what constitutes "socially responsible" can be subjective and vary widely among investors.