With the environment being at the forefront of many people’s minds, and environmental topics dominating the news, it comes as no surprise the environmental concerns would come to Wall Street. As such, socially responsible investing has become a hot new trend on Wall Street, with several mutual fund companies offering products that meet this demand.
What is Socially Responsible Investing?
Socially Responsible Investing is an investment strategy which considers both the financial return and social good of the company. In general, socially responsible investors encourage investing in companies that promote economic stewardship through their policies, have strong consumer protections, protect human rights, and promote social justice.
Socially responsible investors tend to avoid companies that are involved in resource extraction, alcohol production, gambling, weapons, and military production.
How Does It Work
In most cases, socially responsible investing focuses on screening stocks that meet the criteria listed above. There are even mutual funds and ETFs that have already selected a basket of stocks that meet those criteria.
However, some socially conscious investors have recently taken socially responsible investing to a new level by promoting practices such as impact investing, shareholder advocacy, and community investing. By being shareholder advocates, socially responsible investors seek to maintain strong policies at the companies, even at the expense of corporate profits.
Social investors focus on 4 main ways of investing:
- Stock Screening: Screening for investments while considering social and economic criteria
- Divestment: Removing stocks from a portfolio based on social reasons, not financial reasons
- Activism: Attempting to influence corporate behavior
- Positive Investing: Making investments in companies believed to have a positive social impact (usually through angel or venture funding)
Who’s Doing It
Socially responsible investing has become an important trend. Over $3 trillion has been invested in socially responsible portfolios as of 2010, and that number continues to climb. There are currently over 250 socially responsible mutual funds, and 26 ETFs that incorporate socially responsible investing tactics.
Image source: http://www.ethicalsuper.com.au/