Invest Responsibly: Make the World a Better Place

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:

1. Screening

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.

3. Divestiture

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.)

 

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Hi I’m Jaime. Each and every week I bring you the top business advice from the people who know best.

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5 responses

  • Interesting info. Our entire financial plan would be turned upside down since we’re heavily invested in target date mutual funds and I have no idea what they are specifically invested in, but I’ve never heard of this before, so it’s a really interesting post.

  • Glad you liked it! And let me just say I love your comments. 🙂
    .-= Jaime @ Eventual Millionaire´s last blog ..Invest Responsibly: Make the World a Better Place =-.

  • Hey,
    Long time no see.
    Thanks for dedicating this post to ethical investments.
    It reminds me of a conversation that led to the discovery that our local teachers’ pension fund invests in various tobacco companies. Good growth potential and unfortunately rising profits, but ethical?
    Anyway, great post.
    Cheers,
    Guy
    .-= Guy G.´s last blog ..Tips on Budgeting – Help With A Budget =-.

  • Wow, not exactly ethical.

    That reminds me of my 9th grade class, where we had to pick stocks. I chose tobacco because I hated it. (not exactly sure why I chose it because I hated it!) But that same week was apparently the week that they were called into court for selling to teenagers.

    The stock crashed hard. It was a great lesson (without any risk) and I still remember it to this day!
    .-= Jaime @ Eventual Millionaire´s last blog ..Invest Responsibly: Make the World a Better Place =-.

  • I think SRI does have it’s merits. But just to argue a bit for the other side, do you know if these mutual funds have higher expense ratios?

    I would think that they do, since screening the stocks involves more work. And if they do, then this may hinder people who like to keep the costs of investing as low as possible.

    Other than that, I do like the idea behind these funds.
    .-= Darren´s last blog ..Use Math To Alleviate Fear Of Stock Market Volatility =-.

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