Socially Responsible Investing (SRI)
An investment approach that incorporates environmental, social, and governance criteria alongside traditional financial analysis.
What is Socially Responsible Investing?
Socially responsible investing (SRI) is an investment approach that incorporates environmental, social, and governance (ESG) criteria into the investment decision process alongside traditional financial analysis, with the goal of generating competitive financial returns while promoting positive societal outcomes. SRI strategies range from negative screening (excluding industries such as tobacco, firearms, or fossil fuels) to positive screening (selecting best-in-class ESG performers) to impact investing (directly funding projects with measurable social or environmental benefits). The distinction between SRI and ESG investing is often blurred, but SRI historically emphasized ethical exclusions, whereas modern ESG integration focuses more broadly on material risk factors that may affect long-term financial performance.
Example
The MSCI KLD 400 Social Index, one of the oldest SRI benchmarks, excludes companies deriving significant revenue from alcohol, tobacco, firearms, gambling, nuclear power, and adult entertainment, while including companies with strong ESG ratings. Since its 1990 inception it has broadly tracked—and sometimes outperformed—the S&P 500, supporting the case that SRI screening does not necessarily sacrifice returns.
Source: MSCI — ESG Indexes