Social Responsible Investing (SRI) is the integration of environmental, social, and governance (ESG) factors into the selection and management of investments. There is growing evidence that SRI reduces risk and yields superior financial returns in the long-run. In addition, there is increasing consensus among investors that having accurate valuations and proper risk management means having greater disclosure and consideration of ESG issues (e.g. climate change, human rights/labour relations, consumer protection, health and safety, and indigenous/aboriginal community relations).
Negative and Positive screening is used on companies to determine if they are socially responsible. Negative screening can exclude weapons contracting, alcohol and tobacco production, pornography, and gambling for example. Positive screening, on the other hand, helps select industry leaders using international labour standards, environmental impact, gender and cultural equality, and animal welfare.
Using the ESG impact model:
Environmental damage is mitigated or healed; forest companies which replant trees are a good example.
Social (community) development occurs through fair treatment and responsible management of employees and customers, as well as charitable work with employees.
Governance that is responsible on a corporate level and shows high standards of business integrity is reinforced. This can mean including women on boards of directors, ensuring equal pay, and respecting disabilities for example.
Investing in a socially responsible manner lets you align your investments with your values, meaning you can make money and make a difference at the same time