Guide to Socially Responsible Investing

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Investing has not traditionally been an area where social responsibility has necessarily played a leading role, but there are increasing calls for investors to invest in a socially responsible manner. One of the challenges with that is how to go about it, and many investors do not know where to start. Another fairly important point is that investors need to know what it means to them to be “socially responsible”, as for some this means different things, and people have different concepts of and perceptions of social responsibility and ethics. Writing for Business Insider, in 2012, Jill Krasny attempts to help investors to be able to invest, “and save the world at the same time”, by providing some useful guidelines that they can follow.

To start with and perhaps addressing the problem of what social responsibility means, Jill Krasny explains that it is important to understand one’s own goals in this regard. People should look inside ask themselves what socially responsible investment means to them. As explained by Krasny:

 “For some it’s about progressive social issues and social justice issues. For others it might be labelled as faith-based investing”.

This means that who you are and what you stand for will have a significant influence over what you might consider to be “socially responsible investing”. Krasny suggests also researching company websites and understanding what their views are on social responsibility. This could mean reviewing “Corporate Social Responsibility” sections on some company websites, but also researching in the news and media bout the reality of the company’s behaviour. After all, it is one thing to post articles on a company website saying that the company is committed to building up communities, but it is quite another to put their money where their mouth is and actually have done this to deliver real results, rather than passing gestures only. This type of research will help to identify if a company that claims to be socially responsible actually still uses sweatshops in Bangladesh, for example. Krasny also recommends asking a financial advisor, though this will depend on whether the advisor has an interest in this area, because if not, he/she may not have any more knowledge than you in this regard.

The following short video summarizes what is socially responsible investing:

Social Funds is another website that helps with the practicalities of socially responsible investing. The website contains extensive information on personal finance to help people to be able to invest in a socially responsible manner. The website includes information on socially responsible investing mutual funds, community investments, corporate research, share owner actions and daily social investment news, helping those that want to invest get a real sense of social responsibility on the part of organisations. There is a guide to community investing which can be helpful for those that are interested in this particular area. There is also a free Socially Responsible Mutual Funds guide, which provides a depth of information that can help to invest responsibly. The guide provides information on how socially responsible invested funds are used to achieve social and environmental objectives by organisations. These types of guides can help to provide you with greater depth of information to be able to better assess organisations for their level of social responsibility and if their values match your own.

An alternative website to look at, according to Jill Krasny is the Forum for Sustainable and Responsible Investing.  This website is helpful because it holds a wealth of information that can help to guide and add value to your research on socially responsible investing. Particularly helpful for beginners might be the “SRI Basics” section, which offers documents and other materials that can help you to understand the different kinds of environmental, social and governance factors that might guide your investment decision making process.

EIRIS is another excellent resource, packed with information on socially responsible investment. The mandate of EIRIS is to “empower responsible investment”. The organisation is itself a social enterprise, and it makes independent assessments of organisations regarding their level of environmental, social and governance (ESG) approaches, to provide you real information on which to base your investment decisions. The data in these reports is comprised of information gleaned from NGO reports, trade journals and media coverage. This helps investors to be able to see which companies are really addressing issues and which are not. Risks of investing are also presented, to help investors with prudence.

Additional resource: video produced by Wharton Business School, of a lecture by finance Professor Alex Edmans on “Socially Responsible Investing: Doing Well by Doing Good.”