The Definition of Socially Responsible Investing

Many authors describe Socially Responsible Investing (SRI) as an investment philosophy that includes non-financial, ethical (e.g., social and environmental) objectives. In the words of Richard Hudson (2005), Socially Responsible Investing is a "non-financial normative criteria...in the choice of securities". Mansley (2000) has described it as a process within the context of financial analysis, which takes into account social, environmental and ethical consequences when selecting, retaining, or realizing investments. Notably, Waddock (2003) portrays SRI as a community that encompasses a wide range of individuals and groups interested in criteria other than just return on investment.

However, it is hard to construct a proper definition without referring to Cowton's (1994) precise and comprehensive attempt which may be easily accepted as a standard definition of responsible investing. Taking the terms "ethical" and "socially responsible" to be equivalent, Cowton stated that:

"Ethical investment may be defined as the exercise of ethical and social criteria in the selection and management of investment portfolios, generally consisting of company shares (stocks). This contrasts with standard depictions of investment decision-making in finance textbooks, which concentrate solely on financial return in the form of dividends and capital gains, and risk..." (Cowton 1994).

The quality of Cowton's (1994) definition lies in confronting a conventional investment decision-making process with the one applied in Socially Responsible Investing. Cowton develops his definition even further by including sources of financial returns from investments to be the basis for concerns of ethical investors. Similarly, Social Investment Forum (2003) refers to such type of investing as a process that focuses on non-financial consequences of investments. However, by designating sources of financial returns as important factors, Cowton clearly demonstrates that SRI is not only about avoiding certain activities and consequences, but much more. Based on this assertion, Sparkes (2002) suggests that Socially Responsible Investing should be an investment philosophy that combines financial and non-financial criteria.

In order to understand the meaning behind the concept of Socially Responsible Investing more fully, it is recommended that one should also get acquainted with the goals of SRI, its historical development and the potential difference between ethical investing and socially responsible investing.

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ResponsibleInvesting.info is an information channel devoted to promoting and supporting Socially Responsible Investing. Through its articles, site offers key information about Ethical Investing and its methods. It aims to contribute toward Ethical Investment becoming a mainstream. Learn about the concept of Socially Responsible Investment, its historical development and current investing strategies.

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