Pros and Cons of Socially Responsible Investing

Socially Responsible Investing At a glance

Modern businesses are taking a new turn. Socially Responsible Investing (SRI) is where you strategically invest in companies conducting their businesses while adhering to certain ethical laws and guidelines.

Ethical practices include the use of green technology and solar panels to run industries and generate electricity for other business activities.

Socially responsible funds and ethical practices may include avoiding investing in areas like firearms or tobacco sectors.

In this article, we explore the pros and cons of socially responsible investing and many more insights. 

Types of socially responsible investing

  1. Environmental, governance, and social funds. This is where socially responsible investing funds exclude all those firms that do not adhere to ethical business activities. 
  1. Socially responsible investing funds. When it comes to socially responsible funds, there are several classes. Socially responsible funds are targeted at firms that stick to ethical laws alone. This ensures that all firms operating in the business setting stick to guidelines for the welfare of the entire society.
  1. Impact funds. An impact fund, like other funds attached to social responsibility in business, is strictly based on the firm’s resolve to prioritize business social responsibility and ethics in business. 
  1. Faith-based funds. Faith-based funds are only available for firms with certain beliefs and affiliations. These can be those that follow Catholic, Islamic, or Christian values. Needless to say, any firm that does not fit in any of these particular categories is excluded from receiving the funds. And they are often very strict. 

Pros of Socially Responsible Investing

Pros of socially responsible investing

It makes it easy to regulate businesses 

Socially responsible investing makes it easy to regulate the number of businesses. It is also possible to regulate the types of goods and services offered in the market. It ensures that the buyers and the entire society are consuming legit products. 

Increased returns

Though it may take time to build great reputations in the business, once you are established, the rewards are steady and guaranteed. So, you should be willing to face the grind. There are no shortcuts. The more you prove to your clients that you can deliver great quality, the more customers you can retain. This has a positive impact on the sales and your business portfolio.

Healthy business settings 

Healthy business undertakings have a defining impact on the type of business society that will be created in the long run. Companies that are not following stipulated guidelines are indirectly punished and they will quit the business. The only way to make companies thrive is through investment capital that is only available only to certified firms. 

The more companies venturing into socially responsible investments the more rewards these companies will get. Such an impact will take time to manifest but once it sets the pace, it becomes a timely catalyst to social change. Partnerships between companies that provide similar goals are one of the most efficient ways to root out companies that do not comply.

Fosters environmental concern and conservation

Socially responsible investing is very careful to priorities environmental conservation. Through concerted efforts, it is possible to create a holistic business environment. For instance, almost all countries in the world today, demand that all industries must treat wastes before releasing them to water bodies. Our environment impacts our future. Living and thriving in harmony with the environment is a great way to create a healthy business environment while making great returns. 

Cons of Socially Responsible Investing

cons of socially responsible investing

Socially responsible investing is a double-edged sword. Just like any other business decision and undertaking, it has its advantages and downsides. Here are some cons:

Ethics more important than business performance

There is no doubt socially responsible investments have a lot of limitations. This restricts the types of viable business opportunities you might want to tap. Sometimes, you will simply have to give up on an investment opportunity because social ethics are against something you want to venture into. The bottom line is that when socially responsible investing is the primary objective of a business, the financial gain is severed and the equation becomes imbalanced.

Company greenwashing and lies

In as much as many spirited efforts have been brought forward to banish firms that are not complying with social ethics in business, there are still many firms that preach water and take wine. In the public domain, it is easy to use marketing strategies to lure potential customers. However, this might be far from reality. People are willing to fashion a great marketing campaign and sell the wrong commodities.

It spearheads graft

Restrictions come with repercussions. Some businesses are willing to take all the risks to make their way through and transact illegal businesses. This increases cases of corruption since people are willing to buy their way through. In as much as they are assured of a reward, they will always use back doors and shortcuts to make their businesses thrive. At the end of the day, grave danger is posed to the consumers and the environment. So, it is true to say that social ethics and restrictions in business might be the cause of this rot in society.

You may lose a business opportunity

Earlier on, we had hinted that socially responsible business focuses chiefly on social responsibility. Honestly, this will mean you stand a high chance of losing great business opportunities. Sometimes, you will identify a business opportunity but social ethics will bar you from venturing into it. In a nutshell, there are higher chances of losing than gaining. 

Final Words

It is important to balance between making a profit and creating a healthy business environment for yourself and future generations. Certain countries have restrictions where you must meet them before you embark on doing a business. In such a case, social responsibility is not a choice. Healthy and business endeavors build your business reputations a great deal. This is highly rewarding in the long run. 

Leave a Comment