The compelling reasons behind socially responsible investing

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By: skyden.dredge
on 8th Jul,2011

These are ethical investments which seek to maximize financial return and social welfare simultaneously.
The compelling reasons behind socially responsible investing


In modern times, the idea of socially responsible investing (SRI) has caught the fancies of the investors' fraternity across the globe. These are ethical investments which seek to maximize financial return and social welfare simultaneously. SRI encompasses investing in such companies which are engaged in environmental sustainability, diversity and alternative energy/clean technology efforts. This also prohibits investment in the stocks of the companies that sell addictive substances such as alcohol, tobacco and gambling. Ethical investments can be made in individual companies or in a socially conscious mutual fund or exchange-traded fund (ETF). Individuals or businesses who/that practice socially responsible investing have their own specific interests and levels of concern about the society and the Earth. Below here we list the top priorities of the socially responsible investors.

    Environment

Concerns about the environment where you live in are the main motivating factors behind socially responsible investing. Ethical investors backtrack the companies which lead to environment pollution, deforestation, emission of greenhouse gas and other activities which can damage the ecosystem. Such irresponsible behavior can lead to regulatory fines or lawsuits.

    Corporate governance

It is often seen that many corporate honchos engage in corporate frauds, lie to the shareholders and misuse gullible investors' money for their own benefit. This is nowhere close to corporate best practices. These unethical corporate practices often lead to the downfall of many established corporate players with shares of these companies plummeting appreciably. Classic example of corporate fraud is Enron. Ethical investing rules out investing in the shares of such crooked companies.

    Health care

The socially responsible investors are very much concerned about the health care and the health care reforms. The companies which offer affordable health care plans for the employees are treated favorably by the ethical investors. Anyways, health care is a very pertinent issue and a healthy workforce adds to the profitability of a company. Moreover, availability of adequate preventive care lowers down the health care costs by reducing the insurance premiums. Socially responsible investing preaches for investment in such companies which give enough care on the health of the employees.

    Community investing

Contribution made by the companies for community development, is respected highly by the socially conscious investors. Community development initiatives such as affordable housing, water supply, sanitation program, etc, can bring in welfare to the society. Companies, who are directly or indirectly engaged in these community development initiatives, are treated favorably by the social investors.

    Executive compensation

In many companies, there is a huge disparity in the salaries paid to the Chief Executive Officer (CEO) and the rank-and-file employees. The CEOs earn millions of dollars in salary, perks and bonuses while the middle and the lower level employees receive paltry compensation. However, this is not healthy corporate practice. This can indeed be very demotivating to the employees and can even prompt many employees to leave the job. SRI abhors this type of discrimination in the compensation among the employees in an organization. Firms which compensate their employees more equitably are targeted by the socially responsible investors.

Socially responsible investing not only promote the companies which meet some social ends, but it also adds to social welfare.

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