socially responsible investing
An investment approach that considers environmental, social, and governance (ESG) factors alongside financial returns, excluding industries or companies that conflict with ethical values.
Example
“The foundation adopted socially responsible investing, excluding tobacco, weapons, and fossil fuel companies from its portfolio.”
Memory Tip
SRI = putting your MONEY where your VALUES are. Invest in companies that align with your ethics.
Why It Matters
Socially responsible investing allows you to align your money with your personal values while building wealth. By considering ESG factors, you can support companies that operate ethically and sustainably, potentially reducing exposure to regulatory risks and reputational damage that might affect your investments long-term.
Common Misconception
Many people believe that socially responsible investing automatically means lower financial returns or that it requires sacrificing profitability for principles. In reality, numerous studies show that companies with strong ESG practices often perform competitively or better financially over time because they manage risks more effectively.
In Practice
An investor with 100000 dollars might choose to allocate 40000 to an ESG-focused mutual fund that excludes tobacco and fossil fuel companies, 35000 to sustainable tech stocks with strong labor practices, and 25000 to bonds from companies with excellent environmental records. Over five years, this portfolio could grow to 125000 while avoiding industries that conflict with the investor's values around climate and worker treatment.
Etymology
SOCIALLY (relating to society) RESPONSIBLE (accountable, ethical) INVESTING. Investing with SOCIAL RESPONSIBILITY in mind.
Common Misspellings
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