Socially Responsible Investment (SRI) (2024)

FAQs

What do you mean by socially responsible investment or SRI? ›

Socially responsible investing (SRI) is an investing strategy that aims to generate both social change and financial returns for an investor. Socially responsible investments can include companies making a positive sustainable or social impact, such as a solar energy company, and exclude those making a negative impact.

Socially Responsible Investment (SRI) SRI is an approach that aims to balance an investor's ethical beliefs with performance considerations, and typically seeks to achieve a trade-off between social and financial objectives.

What are the differences between SRI and CSR? Socially responsible investing (SRI) is a type of investing that excludes companies failing to behave in a socially responsible manner. Corporate social responsibility (CSR) is a model that businesses can follow to ensure they are operating in a socially responsible manner.

SRI is a type of investing that keeps in mind the environmental and social effects of investments, while ESG focuses on how environmental, social and corporate governance factors impact an investment's market performance.

One example of socially responsible investing is community investing, which goes directly toward organizations that both 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.

This doesn't mean SRI can't be both morally upstanding and profitable. In 2022, the Morningstar U.S. Sustainability Index outperformed its non-SRI parent by more than 0.6% and the S&P 500 by 0.7%. Similarly, most sustainable funds outperformed their Morningstar category indexes on a risk-adjusted return basis in 2021.

CSR is generally categorized in four ways: environmental responsibility, ethical/human rights responsibility, philanthropic responsibility and economic responsibility.

How Does SRI Work in Practice? Although there is no universal rule, SRI strategies commonly use exclusionary screening to avoid businesses that might have a negative impact on society or the environment. For example, a typical SRI portfolio would likely exclude entire sectors like tobacco or defense.

SRI versus ESG

The most common types of sustainable investing are socially responsible investing (SRI), which excludes companies based on certain criteria, and ESG, a more broad-based approach focused on protecting a portfolio from operational or reputational risk.

Over time, SRI steadily evolved to look much like today's corporate social responsibility (CSR) and was focused primarily on social issues such as human rights and supply chain ethics. However, it wasn't until the 1990s that ESG considerations started to appear in mainstream investment strategies.

Do SRI funds outperform the market? ›

Additionally, regardless of the method used to the identify market condition or the asset pricing model employed, SRI funds as a group significantly outperform their conventional counterparts during bull markets but insignificantly so during bear markets.

ESG looks at the company's environmental, social, and governance practices alongside more traditional financial measures. Socially responsible investing involves choosing or disqualifying investments based on specific ethical criteria. Impact investing aims to help a business or organization produce a social benefit.

Instead, SRI involves investing in companies engaged in ethical and socially conscious themes, like environmental sustainability and social justice.

Socially responsible investment (SRI) generally refers to the practice of integrating social, environmental or (putatively) ethical considerations into a financial investment process – for instance, a pension fund's process of deciding what stocks or bonds to buy or sell.

A growing number of investors want to encourage companies to act responsibly in addition to delivering financial returns. The terms environmental, social, and governance (ESG), socially responsible investing (SRI), and impact investing are often used interchangeably, but have important differences.