What Is Socially Responsible Investing

Arrangement by Ebeth Scott-Sinclair

Arrangement
by Ebeth Scott-Sinclair
http://ebethscottsinclair.com

What Is Socially Responsible Investing (SRI)?

Socially Responsible Investing (SRI) weighs conventional financial analysis with the social and environmental impact our investments can have in our lives. When deciding what investments to include in a portfolio, SRI considers both the investor's financial needs and an investment’s impact on society.

This type of investment approach has been described in many ways. A few include “green investing,” “mission-based investing,” “values-centered investing,” “socially informed investing” and “socially responsive investing.”

Whatever the name, this investment approach integrates personal values, societal concerns and financial analysis when making investment decisions.

Three Strategies of Socially Responsible Investing

Screening:
Include or Exclude

”Screening” is the practice of including or excluding investments or mutual funds based on social and/or environmental criteria. It was initiated primarily by churches to avoid the so-called “sin stocks” (alcohol, tobacco, gambling, etc). Screening was also used to boycott companies that did business in South Africa during the apartheid era. This avoidance approach is called ‘negative screening’. ‘Positive screening’ techniques can be used to actively purchase stock from companies whose business practices or products you want to promote. Screening is the most popular SRI strategy.

Shareholder Advocacy:
Engagement

Whether you use it or not, when you buy stock in a company, you have bought a vote in how the corporation does business. Shareholder advocacy describes the active role shareholders take as owners of corporations including initiating dialogue with companies on issues of particular social or environmental concern, as well as filing and voting proxy resolutions.

As a stockholder in a company, you can either engage with the company yourself or work with an SRI investment advisor or mutual fund to do this for you. Working with the company (instead of excluding their stock from your portfolio through screening) provides an avenue for you to affect the way they do business.

Shareholder advocacy is a very powerful and an effective vehicle for change. (Go to the Latest SRI Buzz page for some current shareholder advocacy efforts.)

Community Investing:
Putting your money to work in your community

Traditional lending institutions usually consider low-income individuals “high risk” clients and will not give them credit to finance homes or small businesses. Community Development Financial Institutions (CDFIs) offer banking services to these previously considered “high risk” clients and have proven that, in fact, these clients are reliable borrowers. By providing access to credit, capital, and basic banking products, CDFIs are providing low-income individuals a mechanism to build equity and interrupt the cycle of poverty.

Investing your liquid assets in CDFI products (such as money markets, IRA’s, certificates of deposit) provides the capital that is lent out in the community by these institutions. CDFIs generally offer comparable, if not better, interest rates as traditional banks. By depositing money in CDFIs, you are empowering low-income individuals to develop financial independence.

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