The Value in Socially Responsible Investing (SRI)

Choosing Socially Responsible Investments can offer both environmental and social benefits as well as instill a ‘feel good’ factor. Socially responsible investment often embraces social and moral values and can appeal if you have concerns about working to protect the planet for your children and grandchildren.

When opting for SRI funds, it is important to consider and define your goals and objectives, understand any potential trade-offs and also be clear about exactly what variables are to be considered.

There could be a number of dilemmas to consider too. For example, if investment in “vice” products such as alcohol and tobacco is an anathema what about the transport and energy industries? After all, these products must be shipped to the point of sale which necessitates various means of transport and subsequently, in turn, fuel. These types of considerations make the precise definition of your socially responsible investment goals all the more crucial.

Depending upon your own perspectives, companies may display characteristics that are both irresponsible and responsible. As with any investment approach, it is useful to consider the following:

  • Risk and return objectives and constraints.
  • What these socially conscious constraints are. These can be inclusionary or exclusionary screens, best practices criteria or advocacy. This is critical, but also not always easy to do.
    Once the above has been determined, they can be applied to fund selection and the portfolio can be discussed.
  • Social investing has implicit costs; the returns potentially foregone through the exclusion of companies with unacceptable products or business practices – and explicit costs.
  • Diversification – screens may hamper this process, unintentionally or otherwise.
  • Utilising this type of traditional investment framework can help to make the process manageable, so long as you weigh the costs and benefits of this type of investment approach carefully.

How can SRI benefit society?

A catalyst for change: As more socially responsible companies and projects are supported, other businesses will likely strive to improve their ethical practices to attract funding. Over time, organisations will embrace sustainability, which can only be good for the environment and other important social causes.

Future profit potential: Consumer trend is showing that many people are becoming more ethically driven in their purchases, leading to socially responsible firms increasing profitability in line with these behaviour patterns. Millennials, in particular, are willing to pay a surcharge for sustainable goods and services.

Feel-good factor: Perhaps the most obvious advantage of SRI is the positivity created when an ethical holding performs well. In short choosing to invest in a company which shares your values and delivers socially responsible projects, can provide benefit both financially and emotionally.

Are Socially Responsible Investments right for you?

Investment is complex enough and trying to explain the opportunities and weakness of one specific area in an easily digestible format presents challenges of its own. SRI is not for everyone, but with the right approach and some guidance it can provide a more fulfilling strategy if you are keen to ensure that your portfolio better reflects your social and moral beliefs. For more information on how to invest contact us.

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