DEFINITION of 'Socially Responsible Investment - SRI'

An investment that is considered socially responsible because of the nature of the business the company conducts. Common themes for socially responsible investments include avoiding investment in companies that produce or sell addictive substances (like alcohol, gambling and tobacco) and seeking out companies engaged in social justice, environmental sustainability and alternative energy/clean technology efforts. Socially responsible investments can be made in individual companies or through a socially conscious mutual fund or exchange-traded fund (ETF).

BREAKING DOWN 'Socially Responsible Investment - SRI'

"Socially conscious" investing is growing into a widely-followed practice, as there are dozens of new funds and pooled investment vehicles available for retail investors. Mutual funds and ETFs provide an added advantage in that investors can gain exposure to multiple companies across many sectors with a single investment. Investors should read carefully through-fund prospectuses to determine the exact philosophies being employed by fund managers.

There are two inherent goals of socially responsible investing: social impact and financial gain. The two do not necessarily 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. An investor must still assess the financial outlook of the investment.

One example of socially responsible investing is community investing, which goes directly toward organizations that have a track record of social responsibility through helping the community and have been unable to garner funds from other sources, such as banks and financial institutions. The funds allow these organizations to provide services to their communities, such as affordable housing and loans. The goal is to improve the quality of the community by reducing its dependency on government assistance such as welfare, which in turn has a positive impact on the community's economy.

History of Socially Responsible Investing

Socially responsible investments tend to mimic the political and social climate of the time. In the 1960s, investors were mainly concerned with contributing to causes such as women's rights, civil rights and the anti-war movement. For example, Martin Luther King, Jr. played a large role in raising awareness for the civil rights movement by targeting companies that opposed the cause as socially irresponsible.

As awareness has grown in recent years over global warming and climate change, socially responsible investing has trended toward companies that positively impact the environment by reducing emissions or investing in sustainable or clean energy sources. Consequently, these investments avoid industries such as coal mining due to the negative environmental impact of their business practices.

RELATED TERMS
  1. Impact Investing

    Impacting investing is investing that aims to generate specific ...
  2. Social Impact Bond - SIB

    A social impact bond is a contract with the public sector or ...
  3. National Social Security Fund (China)

    National Social Security Fund (China) is a government-controlled ...
  4. Fair Trade Investing

    Fair Trade Investing is the act of investing in companies or ...
  5. Social Impact Statement

    A social impact statement is a company's account of how its operations ...
  6. Social Security

    Social Security is a part of a social insurance and welfare program ...
Related Articles
  1. Investing

    Socially Responsible Mutual Funds

    It is possible to avoid unethical investments and still profit from mutual funds. Find out how!
  2. Investing

    Four Socially Responsible Stocks To Watch

    Making money in the market shouldn't prevent you from sleeping at night. Find out how to keep your conscience clean and bank account growing.
  3. Investing

    What is Socially Responsible Investing?

    Whatever term you use to describe it, socially responsible investing continues to rise in the U.S.
  4. Investing

    The Difference Between Social and Impact Investing

    ESG? SRI? How to make sense of socially-responsible and impact investing.
  5. Financial Advisor

    Impact Investing: Making A Difference And A Profit

    Most investors spend their time chasing returns. But what if there was a way to do good while also turning a profit?
  6. Retirement

    The Potential Impact of 2017's Social Security Cap

    The Social Security cap increased to 7% in 2017, but even that may not be enough to keep Social Security from running out of funds.
  7. Managing Wealth

    How Social Impact Bonds Work

    Social impact bonds are one way to funnel money to projects that will impact society.
  8. Personal Finance

    Social Finance Careers: How To Get Hired

    A career in social finance allows an individual to apply financial skills to complex social problems. Find out how to get a financial career in this field.
  9. Investing

    Socially (Ir)responsible Mutual Funds

    Not concerned about being an ethical investor? Maybe "sinful stocks" have a place in your portfolio.
  10. Investing

    Due Diligence Needed in Socially Responsible Investing

    Socially responsible investing can be a worthwhile endeavor for many investors, but it may take a little more work.
Trading Center