## What Is a Socially Responsible Investment (SRI)?

Socially responsible investing (SRI), also known as social investment, is an [investment](https://www.investopedia.com/terms/i/investment.asp) that is considered socially responsible due to the nature of the business the company conducts. SRI has a dual objective of financial gain while supporting social agendas. Socially responsible investments can be made into individual companies with good social value, or through a socially conscious mutual fund or exchange-traded fund (ETF).

SRI continues to grow in popularity as businesses are pressured into adopting responsible environmental, social, and governance (ESG) practices.

### Key Takeaways

*   Socially responsible investing (SRI) targets companies with social and environmental benefits and excludes those involved with harmful products or practices.
*   SRI strategies often align with environmental, social, and governance (ESG) criteria for evaluating potential investments.
*   The practice is increasingly popular, with more funds and investment vehicles available that meet these socially conscious goals.
*   Socially responsible investments reflect the current political and social climate and involve distinct financial risks and potential rewards.
*   Community investing supports organizations unable to access traditional funding, focusing on improving community welfare and economic stability.

## Exploring the Principles of Socially Responsible Investing

Socially responsible investments—known as [conscious capitalism](https://www.investopedia.com/terms/c/conscious-capitalism.asp)—include eschewing investments in companies that produce or sell addictive substances or activities (like alcohol, gambling, and tobacco) in favor of seeking out companies that are engaged in social justice, environmental sustainability, and alternative energy/clean technology efforts.

In recent history, socially conscious investing has been growing into a widely-followed practice, as there are dozens of new funds and pooled [investment vehicles](https://www.investopedia.com/terms/i/investmentvehicle.asp) 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. However, investors should read carefully through fund prospectuses to determine the exact philosophies being employed by fund managers, along with the potential profitability of these investments.

Socially responsible investing has two main goals: social impact and financial gain. The two do not necessarily have to 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, and the promise of a good return is far from an assurance that the nature of the company involved is socially conscious. An investor must still [assess the financial outlook of the investment](https://www.investopedia.com/invest-in-socially-responsible-roth-ira-5220521) while trying to gauge its social value.

> **Important**
>
> Demand for ESG investments soared in 2020. Nearly 60% of respondents to an Investopedia and Treehugger survey indicated an increase in interest in ESG investments and 19% reported incorporating ESG standards into their portfolios.

## Important Factors to Consider in SRI

Socially responsible investments often reflect the current political and social environment. That is an important risk for investors to understand, because if an investment is based on a social value, then the investment may suffer if that social value falls out of favor among investors.

Investment professionals often view socially responsible investing through the lens of environmental, social, and governance (ESG) factors. This approach focuses on the company's management practices and whether they tend toward sustainability and community improvement. The [FTSE4Good Index](https://www.investopedia.com/terms/f/ftse4good-index.asp) tracks these companies and helps to identify companies with these core values. There is evidence that a focus on this approach can improve returns, whereas there is no evidence for investing success from investing purely on social values alone.

For example, in the 1960s, investors were mainly concerned with contributing to causes such as women's rights, civil rights, and the anti-war movement. Martin Luther King Jr. significantly raised awareness for the civil rights movement by labeling opposing companies 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](https://www.investopedia.com/articles/07/clean_and_green.asp) 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.

> **Tip**
>
> One form of socially responsible investing involves promoting racial justice, equality, and inclusion. Known as racial justice investing, the purpose is to leverage both institutional and retail dollars to invest in ways that advance this and other anti-racist causes.

## Example: Community Investing

One example of socially responsible investing is community investing, which goes directly toward organizations that both have a track record of [social responsibility](https://www.investopedia.com/terms/s/socialresponsibility.asp) 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.

## Where Can Socially Responsible Investments Be Made?

They can be made into individual companies that have [good social value](https://www.investopedia.com/financial-edge/0912/high-profile-christian-business-leaders.aspx) or through a socially conscious mutual fund or exchange-traded fund (ETF).

## What Does ESG Represent?

ESG stands for environmental, social, and governance, which are important factors for some investors to adhere to. Those investors look for solid management of a company and seek out those that gear toward sustainability and community improvement. In 2020, the popularity of ESG investments took off.

## Which Are Among the Top Socially Responsible Bond ETFs?

They are VanEck Investment Grade Floating Rate ETF (FLTR), issued by VanEck; SPDR Bloomberg Investment Grade Floating Rate ETF (FLRN), issued by State Street; and iShares Floating Rate Bond ETF (FLOT), issued by BlackRock Financial Management.

## The Bottom Line

The dual objectives of socially responsible investing (SRI) are achieving social impact while seeking financial returns. These objectives do not always align, so it's important for investors to evaluate both aspects and thoroughly research and understand fund prospectuses when considering an investment. To assist socially conscious investors, some brokers have created indices, such as the FTSE4Good Index, which they can use to identify companies that have adopted sustainable practices.

While SRI is more beneficial for society, and many corporations are taking steps to attract socially conscious investors, there are risks associated with SRI. These investments often reflect current political and social climates, which might affect their performance if societal values shift.

> **Article Sources**
>
> 1.  Moody's Investors Service, Inc. "[Research Announcement: Moody's - ESG Investing a Boon for Asset Managers as Product Skepticism Diminishes](https://www.moodys.com/research/Moodys-ESG-investing-a-boon-for-asset-managers-as-product--PBC_1265808)."
>     
> 2.  U.S. Securities and Exchange Commission. "[Environmental, Social and Governance (ESG) Funds – Investor Bulletin](https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-1)."
>     
> 3.  Morningstar. "[Sustainable Index Funds Produce Strong Gains in 2021](https://www.morningstar.com/articles/1074881/sustainable-index-funds-produce-strong-gains-in-2021)."