Socially Responsible Investing

Socially responsible investing, often shortened to SRI, has its roots in religious and ethical investing, where investors avoided businesses such as alcohol, tobacco, gambling or weapons. Over time, it has broadened to include environmental issues, human rights, labour practices and governance.

The most common SRI method is negative screening, excluding certain sectors or companies. Other approaches include positive screening, choosing companies with strong practices, and shareholder engagement, using ownership to encourage change.

For example, an SRI fund might exclude companies that make weapons, produce tobacco or derive significant revenue from coal, while otherwise investing broadly.

SRI overlaps with ESG investing and impact investing. SRI focuses mainly on aligning investments with values; ESG investing considers environmental, social and governance factors partly as financial risks; and impact investing seeks measurable positive outcomes. Exclusions can make a portfolio less diversified, and their effect on returns has been widely debated, with research producing mixed results.