What Is a Socially Responsible Investment
(SRI)?
• Socially responsible investing is the practice of investing money in
companies and funds that have positive social impacts.
• Socially responsible investing has been growing in popularity in recent
history.
• Investors should keep in mind that socially responsible investments are
still investments and be sure to weigh the potential for return in their
decisions.
Example of Socially Responsible Investing
• One example of socially responsible investing is community investing, which
goes directly toward organizations that both have a track record of social
responsibility through helping the community, and have been unable to garner
funds from other sources such as banks and financial institutions.
• The funds allow these organizations to provide services to their communities,
such as affordable housing and loans. The goal is to improve the quality of the
community by reducing its dependency on government assistance such as
welfare, which in turn has a positive impact on the community's economy.
What Is a Green Bond?
• Green bonds are a type of fixed-income investment used to fund projects
with a positive environmental impact. Like traditional bonds, green bonds
offer investors a stated return and a promise to use the proceeds to
finance or refinance sustainable projects, either in part or whole.
• These bonds are issued by public, private, or multilateral entities to raise
capital for initiatives that contribute to a more sustainable economy and
generate identifiable climate, environmental, or other benefits.
• Projects funded by green bonds include renewable energy, energy efficiency,
clean public transportation, pollution prevention and control, conservation,
sustainable water and wastewater management, and green buildings that meet
internationally recognized standards and certifications.
• Like other bonds, the green variety often has tax incentives in the form of
credits and exemptions, making them more attractive than comparable taxable
bonds.
• Green bonds are often verified by a third party, such as the Climate Bonds
Standard Board, which certifies that the bond will fund projects that provide
environmental benefits
Real-World Example of Green Bonds
• The World Bank is a major issuer of green bonds.
• One of the bank’s first green bond sales financed the Rampur
Hydropower Project, which provided low-carbon hydroelectric power to
northern India’s electricity grid.
• Financed by issuances of green bonds, it produces almost 2 megawatts
per year, preventing 1.4 million tons of carbon emissions. In 2022, its
combined projects lowered carbon emissions by 8.4 million tons.
Carbon Credits
• Carbon credits are permits that allow the owner to emit a certain amount of
carbon dioxide or other greenhouse gases (GHGs).
• One credit permits the emission of one ton of carbon dioxide or the equivalent
of other greenhouse gases. Carbon credits are also known as carbon offsets.
• Companies that pollute are issued credits that allow them to continue to pollute
up to a certain limit that's periodically reduced. The company can sell any
unneeded credits to other companies that need them so private companies are
doubly incentivized to reduce greenhouse emissions.
How Do Carbon Credits Work?
• The ultimate goal of carbon credits is to reduce the emission of GHGs into
the atmosphere.
• Companies or nations are allotted a certain number of credits and they
can trade them to help balance total worldwide emissions.
• The intention is to reduce the number of credits over time, thus
incentivizing companies to find innovative ways to reduce greenhouse gas
emissions.
Socially Responsible Mutual Funds
• Socially responsible investors pay attention to corporate governance,
environmental impact, and human rights, among many other factors.
• Many SRI mutual funds dedicate part of their portfolio to community
investments.
• A socially responsible investing strategy is one that views successful
investment returns and responsible corporate behavior as going hand in
hand.
• Generally, these seven areas are the focus of socially responsible investors:
1. Corporate governance and ethics
2. Workplace practices
3. Environmental concerns
4. Product safety and impact
5. Human rights
6. Community relations
7. Indigenous people’s rights
• SRI also gets a lot of attention for industries and companies that it
opposes as “bad” for society. The latter would include, among others,
businesses involved in gambling, tobacco, weapons, and alcohol.
Ownership Is Taken Seriously
• Shareholder activism, sometimes referred to as company engagement, is one of
the most important hallmarks of SRI funds.
• hey use their ownership rights to influence management through policy-change
suggestions. This advocacy is achieved by attending shareholder meetings,
filing proxy proposals, writing letters to and meeting with management, and
exercising voting rights.
• SRI mutual funds sometimes have higher fees than regular funds. This premium
in fees can be attributed to the additional ethical research that mutual fund
managers must undertake
