Socially responsible investing (SRI) is defined as the practice of investing in companies that meet certain ethical standards while still seeking to achieve financial returns. This approach combines financial objectives with a commitment to investing in businesses that align with the investor’s values, which may include considerations around environmental sustainability, social justice, corporate governance, and other ethical issues.
The essence of SRI is to create a portfolio that not only seeks to generate profit but also contributes positively to society. This dual focus allows investors to support businesses that may be working towards social good while also expecting competitive financial performance. Investors who engage in SRI typically analyze a company’s practices and values, making investment decisions based on both the company’s financial metrics and its societal impact.
This definition distinguishes SRI from other forms of investment. For instance, purely focusing on financial returns without regard to ethical considerations doesn't encompass the values-driven aspect of SRI. Similarly, simply focusing on environmental sustainability can be a part of SRI, but it does not fully capture the broader ethical framework that characterizes the investment approach.