As the world shifts to becoming more socially and environmentally conscious, people have begun to not only adopt these behaviours in their daily lives, but also look to invest in companies that share these principles. This growing class of investments is collectively known as “socially responsible investing”, or SRI, and it is attracting attention from people who want to invest in organizations that are making a positive impact on our environment and our social well-being.

What’s SRI? In simple terms, SRI is an approach where you may choose to exclude securities – such as certain stocks, bonds or funds – from your investment portfolio based on the nature of a company’s operations or how they conduct their business. An earlier iteration of SRI was “ethical investing,” an approach that omitted for consideration any company engaged in industries focused on alcohol, tobacco, gambling, weapons, etc. SRI expanded on this methodology and, through a rigorous screening process, also aims to avoid companies that consciously harm the environment without working toward reducing this harm, plus those that do not offer some form of positive social value. For instance, SRI screening may rule out companies that aren’t committed to reducing their carbon footprint or contributing to overall environmental sustainability, or aren’t promoting ethical standards like racial justice, workplace equality and inclusion.

Is ESG the same as SRI? Sometimes these two terms are used interchangeably, but it’s better to think of ESG (environmental, social and corporate governance) investing as part of the SRI philosophy. ESG considers how a company’s performance may be impacted – positively or otherwise – by certain environmental, social and governance factors. People who consider companies through an ESG lens will devote significant time and effort analyzing a given company’s leadership and management teams, to determine if they follow principles like gender diversity, social and environmental responsibility, fair employee practices and managing operational or reputational risks.

For funds that follow either an SRI or ESG strategy, it’s common for investment managers, as shareholders of a particular company, to engage the management team in an activist role. They’ll try to influence a company – through discussions and/or voting on corporate proposals – to adopt more constructive procedures and behaviours that will help safeguard the company’s continued viability and positively impact society as a whole.