"We are made wise not by the recollection of our past but by the responsibilities of our future."
In a fast-paced world where unstinted competition has resulted in the overexploitation of resources, jeopardization of elementary human rights and gargantuan social disruptions, socially responsible investing has been proffered as one of the many tools which can be effectively used to help us mitigate the same and undertake a business activity which has higher social returns as compared to monetary returns.
Socially Responsible Investing (SRI), also known as social investment, is an investment that is considered socially responsible due to the nature of the business the company conducts. These investments can be made into individual companies with good social value, or through a socially conscious mutual fund or exchange-traded fund (ETF). Socially responsible investing can be connoted to ESG investments (Environmental, Social and Corporate Governance). Amid severe disruptions in the business and non-business sectors, ever aggravating climate change and increasingly conscious consumers, SRI has increasingly gained ground.
Experts say that the rise in the amount of socially conscious investors and ESG corpus is to mimic the political, social, and environmental climate of the time. With increased sensitivity amongst consumers and all contact individuals, socially conscious investing has been thought of as having positive social returns. However, it must be noted that socially responsible investment is not a charitable or unsolicited exercise and hence meticulous planning and projections should be made before undertaking investments in this avenue. Throwing light on some statistics related to SRI, a mammoth sum of 45 billion dollars has already gone into activities that follow the aforementioned parlance in Q1 of 2020, a 14% rise from the previous year.
Socially conscious investing was an underestimated activity until the CEO of the largest wealth management company in the world, BlackRock, made an appeal to industry leaders to start taking baby footsteps in this domain. Following industry leaders, international associations like the ECOSOC and EU have also started making due regard to the same. As aforesaid, SRI cannot be referred to as charity, donations, or not-for-profit activities. It's rather a more sophisticated form of investment analysis in specific organizations or companies which adhere to and duly follow the ESG components as enumerated above.
A company/institution is said to be conscious if the kind of products it's producing/the methodology of producing it is not hazardous to the environment, it brings more benefits than miseries to people and the corporate culture prevalent is satisfyingly appropriate. An investment in an entity with a proper plan with regards to the sustainability of actions, concerns towards societal norms, and inherent diversity is said to be socially driven.
Let's say, for example, eschewing investments in companies that produce or sell addictive substances (like alcohol, gambling, and tobacco) in favour of seeking out companies that are engaged in social justice, environmental sustainability, and alternative energy/clean technology efforts as said to follow the common dictum of social investment. There are two inherent goals of SRI: social impact and financial gain. The two do not necessarily have to go hand in hand; just because an investment touts itself as socially responsible doesn't mean that it will provide investors with a good return, and the promise of a good return is far from an assurance that the nature of the company involved is environmentally conscious. Investors take the call as a result of the prevailing bandwagon. Statutory hindrances, lawsuits, and public dissents are very common with companies that try to shift from the established set of ESG structures. Investors wishing to go with the flow so as to ensure the relative safety of their investments find it wiser to invest in such stocks and companies. Some of the famous categories of social investing include, sustainable and responsible investing (SRI), impact investing (which are intentional and actively driven), ethical investing (guided by self-conscience), triple line bottom investing (social, environmental, and financial), blend value investing (philosophy driven) and lastly thematic investing.
Lastly, it's very important for investors to do their homework or seek expert guidance before undertaking such investments. It's because many companies may not actually be what they portray. A company that claims zero carbon emission in production might actually have a very infamous waste disposal mechanism. Similarly, one being proud about female empowerment and inherent diversity might actually just have it on paper. Hence don't compromise on your money just because they are selling investments by striking the emotional cords of the general public. Don't make a donation, rather make a responsible investment.