Imagine putting your money in a fund, gaining the interest or profit from it, but this fund also helps the world become a better place. This process is Socially Responsible Investing explained to you in one line.
Investors often think of the stock market, bonds, plans, and much more. By using advanced tools like the alpaca API, we can see every minor detail of the market — but we often fail to see the investment sentiment.
Money can make you more money, but if you could also bring a social change while making your bucks on the side — is that a better deal? Well, let’s dive in and understand this paradox.
In its most straightforward sense, this is an investment made on companies, causes, and establishments that provide value to your funds and help society in a specific way.
These investments are possible from algorithmic stock trading, mutual fund investments, or even exchange-traded funds (ETFs).
Companies that are aimed at social welfare or support good social values gain from this route. The route of the investment is not defined, but the pool of organizations is the main game-changer.
Where It All Started
The history of SRI can be dated back to the 1700s when the Quakers said they would not invest their wealth in “sin activities” such as the slave trade. This vision later warped into what we call SRI today.
For the decades to follow, investors turned averse to investing in these industries, such as tobacco and liquor.
This message further evolved in the 1960s when investors gave this process a name and only put their money into activities like women’s rights and public liberties.
Not just in the US, but in South Africa, they were one of the leading changes that took money away from the oppressors and brought a shift away from racial segregation.
The Goals Of This Model
Only because the investments occur in a socially-oriented manner does not mean it lacks the intent of profits. The goals are both to create social impact and to consider financial gain in the process.
The investor has to assess the situation and the mission they are placing their money into. They must study the company and understand if the investments will give returns and the cause behind the monetary input.
They must take the time to read fund-prospectus and determine the philosophies they make it a social investment.
The ‘How’ Of SRI
In the last decade, companies have joined this pool of establishments that aim to raise funds from the message of social development. There are many new funds and pooled investment vehicles for retail investors.
By employing mutual funds and ETFs, the investor can also distribute their funds into many companies and sectors.
The only controversy surrounding this form of investment is that companies change their physiology to a social-change that is currently trending to drive investments.
This switch can risk the investment; since the trend could die and deflate the asset with time. The best way to gauge the right SRI is from ESG-factors, Environment, Social, and Governance factors.
This practice is the study of the companies’ ongoing claims and determining if they are suitable for this investment route.
The investor will have to account for historical and future-prediction data to understand if the company is genuinely working for a cause or using this as a ploy to increase cash-inflow.
Tips For Newbies
If you are new to SRIs, here are some ways to help you take a call:
Finding a gem in the pool of many companies and establishments can be a slow and challenging process. This will take time and effort to determine which is the right one for you.
One of the best ways to narrow down the lens is by picking a domain first. You can then shortlist companies in each cause and study the work they have done in the past.
You can choose your social welfare domain from climate change, environmental sustainability, or women’s rights. The most important choice is picking a company or stream that matches your values and believes.
Once you make an SRI, the job is not done there. You are now also taking responsibility for the burden of change. As a stakeholder, you can enforce change, follow up on progress, and propel actions.
You can also create a ‘stakeholder resolution’ for this purpose. This document highlights the suggestions and goals of your investment and set timelines for returns and results.
Consider A Community Investment
As an investor, you can invest in areas of low incomes or underdeveloped communities that are close to your heart. These will help fund projects in places that are distant from banks and other loan providers.
The return on these investments comes from this region’s economic growth and the development of resources that are otherwise not producing their full potential.
Find Your Voice
Lastly, It is important to only invest in a space that is close to you or your personal vision of society. Do not invest in the education sector if you are more connected to climate change. Pick one battle and stick to it.
Being part of more than one cause can conflict with your funds, divide your attention, and shrink your returns. Know that the return on investment is both slow and significantly less compared to other forms.
If the main aim is to double your income in less time, you are better off with another route. SRIs are a slow process that will bear monetary fruits later, and social change first.
If you’ve ever heard of this model before, it’s only because SRIs have failed to win the spotlight. This is only a rising trend that can help in a very significant way. You might have to be the first to lead by example.
With time, social reforms are becoming the part-and-parcel of each company’s philosophy. Being ahead of the game in this route and clever use of algorithmic stock trading will make you the leader of this cause.