Is there a difference between Ethical Investing and Socially Responsible Investing (SRI)? Several terms are used when referring to the practice of using ethical, non-financial criteria in choosing investment opportunities: social investing, socially responsible investing, green investing, ethical investing and so forth. What is the difference and which one should be used?

Hudson (2005) distinguishes ethical investment from other practices in that the ethical investor is very much interested in returns, whereas socially directed investment will accept “below-market” returns in order to contribute to some form of social or economical activity that is highly valued by such socially directed investors. Schwartz’s (2003) study builds on this concept by questioning the nature and extent of ethical investment and argues that a lot of issues that pass for ethical investment are more likely to be social or political.

Because ethics can be sometimes very personal and undefined, and may vastly differ among individuals, it is not an easy job to designate all issues within ethical investing as ethical or non-ethical. Especially when issues like worker’s rights, environment, treatment of women and so forth arise, they may encompass the ethical framework of an individual. “It made sense to call SRI ‘ethical investment’ when it described people investing along with their personal values in unit trusts or mutual funds. It makes less sense to describe pension fund investment as ‘ethical’, whereas ‘socially responsible’ seems to fit them much better” (Sparkes 2002:23). Woodward (1999) notes that avoiding certain investments on moral grounds may explain the use of the word “ethical”. The difference in terms may also emerge in regards to the quoted source, as it appears that “ethical” investment is the term used in UK reports and studies, whereas “socially responsible” investment prevails in those of U.S. origin (Woodward 1999).

In conclusion, the term “socially responsible investment” seems to be more appropriate when referring to the practice of using moral criteria in selecting investment opportunities, as it does not depend on individual preferences. However, in light of previous arguments, the terms “ethical investment” and “socially responsible investment” can also be treated as synonyms.

Another key segment of SRI that should make our understanding even more complete is the comprehension of the historical development of Socially Responsible Investing.