Introduction to Sustainable Finance
Socially Responsible Investing (SRI) is an investment strategy that aims to generate both financial returns and social or environmental benefits. SRI is also known as sustainable, responsible, or impact investing. SRI investors seek to align their investment portfolios with their values and beliefs, and to support companies that are making a positive contribution to society and the environment.
One of the ways that SRI investors evaluate companies is through Environmental, Social, and Governance (ESG) factors. ESG factors are criteria that investors use to assess how well a company is managing its impact on the environment and society, and how well it is governed. ESG factors may include things like carbon emissions, labor practices, board diversity, and executive compensation.
SRI investors can use various strategies to construct their portfolios. Some SRI investors use negative screening, which involves excluding companies that engage in activities deemed harmful to society or the environment, such as fossil fuel production or tobacco manufacturing. Other SRI investors use positive screening, which involves actively seeking out companies that have a positive social or environmental impact.
There are several types of SRI investment products, including mutual funds, exchange-traded funds (ETFs), and separately managed accounts. SRI investment products may focus on a specific social or environmental issue, such as climate change or gender equality, or they may be broadly diversified across multiple issues. SRI investment products may also target specific regions or asset classes.
One example of an SRI investment product is the iShares MSCI KLD 400 Social ETF, which tracks an index of 400 companies that have high ESG ratings and are considered leaders in social and environmental responsibility. Another example is the Calvert Equity Fund, which invests in companies that meet Calvert's ESG criteria and have a positive impact on society and the environment.
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