Balancing the two main goals for socially responsible investing (SRI): social impact and financial gain is not easy. While balancing the two aspects is impossible, it is an investor’s role to find their own balance. Upon balancing between the two, Investopedia suggests these five basic strategies to achieve maximum financial return and social gain in socially responsible investing (SRI).
Step 1: Screening for potential companies for socially responsible investing (SRI)
Firstly, and choose companies for investment. In this phase, investors sort out which companies are in or off their list. Social and/or environmental criteria will become the basis for investors in deciding which corporates to include in their portfolios.
Step 2: Negative screening, excluding bad apples from your socially responsible investing (SRI)
Keep in mind that the main objective of socially responsible investing (SRI) is to dodge socially and/or environmentally unfriendly companies. Hence, in this phase investors proceed to the second screening to cross out securities violating social or environmental criteria.
Step 3: Inclusionary/positive screening of socially responsible companies
In this phase, investors will have to focus on the best-performing corporates, socially and/or environmentally-wise. This time, commence more in-depth research upon potential companies’ responsibility socially and environmentally. If possible, find out whether or not other firms related to the companies are problematic.
These days, it is uncommon for corporations to get evaluated by how sustainable they are as well as how socially and environmentally responsible they are. In fact, this phase often opens the chance for underrated communities to get support through mortgages or small business credit.
Step 4: Divestiture
Divestiture, or divestment, is defined by Investopedia as the opposite of an investment, in which subsidiary assets, investments, or divisions of a company are sold to gain maximum value of the parent company. In this case, divestment means investors exclude prenominated securities from a portfolio that are not in line with certain social or environmental criteria.
Step 5: Shareholder activism to open more choices in socially responsible investment (SRI)
In proceeding with shareholder activism, socially responsible investors will need to persuade corporates that they are capable of bringing positive changes into the corporates’ social responsibility. This strategy may take a little time. If investors proceed with this strategy, they will need to discuss a lot of issues. There are a lot of important issues worth to discuss, such as overseas labour, discrimination, marketing practices, and CEO compensations. Investors may also refer to the ESG criteria for a more elaborated discussion. Upon the discussion, investors should definitely not miss out how several changes may bring higher financial gain along with better well-being of the stockholders, customers, employees, vendors and communities.
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