Written by What Is SRI?
- Definition: Socially Responsible Investing (SRI) involves choosing investments based on both financial returns and ethical or social considerations.
- Ethical Criteria: SRI funds may avoid investing in companies involved in activities such as tobacco production, fossil fuels, or weapons manufacturing.
- Focus on Positive Impact: SRI often focuses on companies that contribute positively to society, such as those involved in renewable energy, education, or healthcare.
How SRI Works
- Screening: SRI funds use positive and negative screening to select or exclude companies based on social, environmental, and governance (ESG) criteria.
- Shareholder Advocacy: Some SRI investors engage with companies through shareholder advocacy, encouraging them to adopt more ethical practices.
- Impact Investing: SRI may overlap with impact investing, where investors specifically seek to achieve measurable social or environmental outcomes alongside financial returns.
Benefits and Risks of SRI
- Positive Impact: SRI allows investors to align their investments with their values and contribute to positive social change.
- Potential for Competitive Returns: SRI has evolved to offer competitive financial returns, as many companies focusing on sustainability have seen strong performance.
- Limited Investment Universe: One downside of SRI is that it may limit the pool of companies available for investment, potentially reducing diversification opportunities.
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