Thanks to Sharon Smith for this guest post!
The economy is slowly turning around. It is now time to get back on our feet, take charge of our own finances, get out of debts and start investing to make up for the losses incurred over the last few years.
While you rebuild your finances, consider a socially responsible investment. It is the best that you can do for yourself as well as for the world.
On an average, almost 80% of the investors make certain grave errors while investing. Then, to make matters worse, they continue with these errors for years without rectifying them.
This thereby causes immense harm to their financial well-being as well as to the immediate environment that the belong to. In this article, I am going to point out an aspect of investment that we often overlook. It is the socially responsible investment.
Socially responsible investment has now become a global phenomenon. The number of social investors across the world are increasing in rapid numbers. Socially responsible investing is an approach that acknowledges corporate social responsibility. It considers not only the profit and returns of an average investor, but also the overall impact that it has on the society.
The term socially responsible investment is backed by ethical and moral guidelines. It considers companies that develop a beneficial environment.
The origin of SRI is from the religious beliefs of the quakers. The shift of SRI from the religious background to a broader perspective got a revival with the South Africa deprivation movement in the 1970’s and the 80’s.
During those circumstances, many investors avoided holding positions in the companies that supported or in anyway benefited from the South Africa’s Apartheid policy.
Recently, the major increase in environment awareness has also vastly increased the awareness about the SRI.
People have different ideas about the various social responsibilities. Therefore, investors should choose companies for investment according to their own beliefs, what they believe is appropriate.
Social investors usually make use of five different strategies to optimize the financial return while keeping in mind the overall social welfares:
Through this process, the investors identify and filter certain securities to exclude them from the investors portfolio based on various social and environmental criteria.
2. Negative screening
The main focus of the SRI is to avoid investments in companies involved in offensive practices such as alcohol, tobacco arms & ammunitions, etc that are harmful to the youth, society or country.
Based on certain social or environmental criteria, certain investments can be removed from an investor’s portfolio. It might sound easy, however, in reality, many institutional investors find it difficult to sell out the investments as they hold large positions in the company.
4. Positive screening
Companies having strong recommendations in areas such as environment, employee relations etc always gain high ranks amongst the social investors.
5. Share holder activism
This attempts to influence corporate behavior with the belief that raising concerns as labor, discrimination etc. will improve and enhance the well-being of the community as a whole.
Money invested in a socially responsible community development institution may be used to relieve inequality and poverty, support economic development and green environment and also create other social good.
This can also be a great psychological boost for the investors as well. By investing in a socially responsible company, an investor will not only gain financially but will also contribute to a worthy cause.
Sharon Smith is a financial writer. She is associated with the Oak View Law Group. She offers advice on various debt management programs.
(Jaime’s note: I am not a fan of debt consolidation or necessarily support Oak View Law Group, but Sharon is a great financial writer and I liked the information she provided.)