What is Socially Responsible Investment?

Socially Responsible Investment (SRI) is the term used in business and in the financial services industries to describe ethical investing.

Socially Responsible Investment is the practice of considering social and environmental factors, when deciding which loans to provide and to who, and what shares and stocks to buy and what to do with them.

Socially Responsible Investment is growing into a widely-followed practice amongst investment plans, especially with ethical mutual funds which allow investors exposure to multiple companies and sectors with a single investment.

While investors need to read carefully the small print being offered by fund managers to ensure the investment as well as being socially responsible provides investors with a good return; fund managers also need to be on the ball when it comes to what kinds of funds they should offer investors, in what is an increasingly competitive market.

Drawing Up A Socially Responsible Investment Plan

Here are some of the factors that an ethical financial organisation would be looking for when drawing up their Socially Responsible Investment (SRI) policies:

Charities – Those with a good record on charitable donations are likely to favour well.

Human Rights – Areas to avoid include any links to oppressive governments, human rights abuses.

Workers Rights – A poor record on workers’ rights, anti-trade union cultures will be a negative.

Industries – Blacklisted industries are often those who are involved in such markets as gambling, alcohol, nuclear power, pornography, oil, intensive farming, and genetic modification.

Environment – Companies with bad records as chemical polluters, with a disregard to Co2 emissions, deforestation or a general disregard to environmental issues will be a no, no for most ethical investors.

Engagement Policies

A big issue when drawing up SRI policies is to look at a more pro-active engagement approach.

Socially Responsible Investment with engagement built in will involve speaking directly to companies and organisations in order to influence their ethical policies, and promote a positive forward-thinking approach to ethical investment.

Engagement investment funds are often combined with a negative or positive screening policy.

Engagement policies have come about as part of some

Socially Responsible Investment (SRI) programmes as a way of engaging with companies who may fail in terms of the investment fund’s ethical policy; but are still going in the right direction and are open to hear about ways they can improve their approach to ethical policy.

Pros and Cons of SRI Engagement Policies

There are benefits to SRI policies which focus on engagement.

The benefits of encouraging a large, global company to change its ethical policy for the good can be momentous, having a much greater impact on environmental and human rights issues than simply focusing on small companies who are more ethically aware.

Focusing on changing large companies’ commitment to ethical policy is crucial to bringing about serious, large scale ethical change.

It is difficult, however to engage with some large companies: communication infrastructure can be large and it can be difficult to target key decision makers effectively.

Some large companies are also based outside the UK. So for the UK organisation focusing on Socially Responsive Investments it can create communication and logistics problems as a result.

Facing Up To The Challenge

Communicating the case to a large business will always be a challenge. They will want to know about the benefits, and will be worried about its effect on their customer base. It’s important that the engagement strategy is very focused, concentrating on the business sense involved for the large company. As a result such engagement tactics can be a long process before realising any tangible results, and as such as part of any Socially Responsible Investment policy this can be a challenge to investors who can become frustrated about the lack of progress.

More Advice

Some accounts do offer 24 hour support services, which is great. Obviously, always check the terms and conditions of any account carefully before you proceed, especially looking at payments for transactions.

Also, it is advisable to think where your transactions will be made. Some good deals on Internet transactions can be found. Deals and services are changing rapidly though, so remember if you want to avoid going straight for the obvious choice, of say the Co-operative Bank, you will need to do some legwork and shop around.