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What is socially responsible investment (SRI)?

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The latest instalment in our “What is…” series delves into the process of investment analysis and management in relation to exactly how society can benefit in the long run.

Socially conscious investing is growing into a widely administered practice across the globe. Socially responsible investment (SRI) is an investigative approach into a company’s impact or contribution to society, as well as a comparative screening in order to avoid involvement in wider ethical and moral habits.

For starters, the term ‘investment’ itself could benefit from a slight revision to include its multiple implications. Perhaps what ‘investment’ should mean is “putting money to work” to create something of better value, financially, socially or morally.

In fact, the term appears to have been hijacked over the years by the mainstream financial services, with commercial investment being “rarely about providing ‘development capital’”, to quote Ethical Investments.

The way to shift the investment emphasis from conventional speculation to social development and responsibility is to promote sustainable and responsible investments that convey, for example, strong environmental practices, products that adopt safe and clean technologies, and exceptional social and governmental practices.

Both positive and negative screening of investment portfolios can aid in the assessment of SRI, which may include corporate social responsibility (CSR).

In its Making Good Business Sense study, the World Business for Sustainable Development used the following definition for CSR: “Corporate social responsibility is the continuing commitment by business’ to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.”

It is also worth noting the importance of localised, social investing as it plays a major part in delivering capital to communities. Community investing makes it possible to provide financial services to small businesses and vital services, such as affordable housing, childcare and healthcare.

In the run-up to Rio+20, concerns about developments in sustainability are mounting, but a document entitled The Future We Want, released in advance of the event, says, “Social well-being and growth are built on robust high quality infrastructure that creates jobs and wealth, adds long term value and allows for the broad inclusion.

“In this regard, we commit to enhanced infrastructure investment which promotes sustainable development.”

Recently, The Guardian touched upon the increasing need for charities to submit to the pressures of SRI. The debate has no doubt been around for quite some time and, mostly through negative screening, the progress we see is the avoidance of stocks that directly affect the charity’s cause, for example, cancer charities avoiding investment in tobacco stocks.

There is a perception that SRI becomes sidelined during times of economic uncertainty, despite its positives. Underlying that perception is the much-rebuffed claim that investing with a responsible head inevitably sacrifices a financial reward somewhere down the line.

As ethical or sustainable fund managers and independent financial advisers have stressed to Blue & Green Tomorrow on numerous occasions, this simply isn’t the case.

Indeed, as the links between global issues and financial impact on company bottom lines becomes more evident, investing ethically, sustainably or socially responsibly, is likely to be the smarter long-term position. Our recent Guide to Sustainable Investment will further underline this point, as well as opening your eyes to a world where your money can make a real difference.

Further reading:

The Guide to Sustainable Investment

What is a credit card?

What is a bond?

What is an ethical bond?

What is an ISA?

What is ethical investment?

What is green investment?

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