What is socially responsible investing?

Socially responsible investing (SRI) is an investment approach that aims to achieve financial returns while investing only in companies that contribute towards positive social outcomes. Portfolios might include companies that meet certain employee welfare standards or operate within sectors such as social justice and clean technology. PensionBee’s Fossil Fuel Free Plan is an example of this, as it excludes companies that own proven or probable reserves in coal, oil or gas.

Today, a growing number of investment funds specialise in socially responsible investing. But products advertised as socially responsible are diverse and varying, with opinions differing on which industries are ethical and which industries should be excluded.

PensionBee offers three pension plans that make exclusions based on different socially responsible criteria: the Fossil Fuel Free Plan, the Impact Plan and the Shariah Plan. The Fossil Fuel Free Plan, for example, excludes companies that own proven or probable reserves in coal, oil or gas.

Examples of socially responsible investing

There are two ways of looking at socially responsible investing; through the way companies operate and the industries they operate within.

The way companies operate

The way a company operates will determine whether some investors consider them to be socially responsible. The types of company practises worthy of a socially responsible investment fund’s investment may include:

  • High employee welfare standards
  • High consumer protection standards
  • Adequate board/senior-executive race and gender diversity
  • Ethical supply chain partners (eg. factories that provide suitable working conditions)

Industries companies operate within

As well as examining whether a company is deemed a socially responsible investment, funds may exclude companies automatically based on the industry they operate within. These may include:

❌ Gambling
❌ Firearms
❌ Tobacco
❌ Alcohol
❌ Fossil fuels
❌ Adult industries

But while many investors and funds avoid certain types of companies, others proactively seek to invest in companies that are committed to working towards furthering society in a responsible manner. These types of companies might include:

  • Clean technology
  • Environmental sustainability
  • Social justice
  • Education
  • Accessible healthcare.

Types of socially responsible investment funds

To cater for the broad range of values and goals held by investors, investment funds approach socially responsible investing in a variety of ways. All approaches seek to make a positive financial return. And academic studies have found that more sustainable investing can lead to higher returns.

Some simply exclude companies that don’t meet a certain set of criteria (such as board diversity), while others have a narrower investment strategy (such as only investing in Shariah-compliant companies).

Socially responsible pensions

When saving into a pension, you can choose a pension fund that aligns with your values as well as your long-term goals.

PensionBee provides a range of socially responsible pension plans including:

  • Impact Plan: Companies in the Impact Plan are working to support underserved communities and tackle challenges that are going unaddressed to help improve lives and create a better planet for us all to live in. The Impact Plan invests in companies helping to provide education and affordable housing or develop green energy and sustainable food and water to name but a few examples. And crucially those companies’ impact on people and the planet can be measured so you know they’re contributing to real change.

  • Fossil Fuel Free Plan: Excludes the fossil fuel and tobacco sectors while only investing your money in companies aligned with the Paris Agreement goals.

  • Shariah Plan: Invests your money only into Shariah-compliant companies. Investments are approved by an independent Shariah committee.

For more information, read: ESG investing and its impact on pensions.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

Last edited: 06-04-2024

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