It is an investing concept that believes that financial return and social good can go hand-in-hand. The concepts that define social good typically converge upon the following areas: environment, social justice and corporate governance. This kind of investing could be divided into two approaches: (1) only scanning the investing options for their adherence to social good using automation and machine learning or (2) taking a more socially interactive approach comprising of proactive practices like impact investing, shareholder activity or community investing.
Social investing has a long history, but has taken center stage in last decade with people becoming aware of social issues globally. Amidst increasing concern for the environment, society and self-governance and with information available on the Internet regarding corporate social responsibility (CSR), government initia-tives and initiatives launched by nongovernmental organizations (NGOs), a large section of the investing community is opting for investing in funds with themes addressing one of the areas of socially responsible investing.
In most countries, there are corporations, NGOs, government and pseudo-government bodies like railways, insurance companies, etc. that have a large corpus of funds to be invested for social causes. The capital invested by these corporations often makes them eligible for tax deductions. A large number of the citizens are now becoming aware of these provisions and therefore, would want these firms to invest responsibly for social causes. It is estimated that the U.S. socially responsible investing (SRI) industry is a multitrillion dollar industry.
SRI can be done in multiple ways that include eliminating the non- socially responsible companies from the portfolio of securities/products and instead include only socially responsible companies stocks. Another mechanism which most of the funds do is eliminating securities and portfolios that are against the principle of SRI, for example, moving capital away from funds investing in tobacco companies. One of the recent trends in social investing has been impact investing, wherein people target only certain companies/funds that intentionally target cer-tain social initiatives and monitor their performance. Thus, making good financial returns coupled by the desired social change is considered to be more effective than purely philanthropic activity. One of the other investment themes that is picking up recently is investing directly into companies that are responsible for alleviating the social good of communities. This type of investing is also called community investing.
There are quite a number of platforms that have ventured into SRI. In addi-tion to offering capabilities of a typical robo -advising firm, these platforms rank companies in the order of social causes they support and to the extent they sup-port the cause. The platform then sorts out companies that do not match a par-ticular investor’s values. It then offers a product that is the best in terms of the financial returns and meeting investor values. This ensures that an individual does invest only in those companies that match their values, thus driving a social change. These platforms require a minimum investment amount and charge a nominal annual fee for managing the assets that are way less than the 2% fees charged by most of the similar financial advising and investment management firms. Investing in these firms starts with an individual specifying the social val-ues he/she cares about. Some of the issues addressed by some of these platforms are: (1) not investing in companies known to have been causing direct health issues like tobacco and alcohol, (2) investing in companies that are supporting the right social causes like LGBTQ, abortion, etc., (3) not investing in companies that support the exploitation of nonrenewable sources of energy, (4) divesting from the corporations driving or encouraging deforestation, (5) investing in encourag-ing women participation at the workplace, (6) investing in companies supporting eradication of poverty and unemployment, (7) divesting from companies that are encouraging or supporting gun violence in any form, (8) divesting from compa-nies that are not complying to carbon emission norms and causing pollution and multiple other issues. Accordingly, a diversified and transparent portfolio is built around the values that an investor cares about. The platform has a dashboard to track and monitor the progress of an individual’s portfolio and how the portfolio is helping the overall social cause. Additionally, they enable an investor to directly participate in the change by ensuring that their opinions are being discussed with the respective management of the companies.