The Importance of Socially Responsible Investing
by: Davor Miskovic

No one can dispute the extensive influence that large, multinational companies have on the environment and society today. With their business processes and conduct, our daily lives and our welfare are affected. Consequently, more and more people are becoming increasingly aware that unless companies take account of the environmental, social and ethical issues in its business decision making, our future social and economic welfare might be in doubt.  Such concern have created the need to take notice and try to influence corporate actions.

Socially Responsible Investing (SRI) is a well-designed economic discipline which offers investors with strict moral standards to invest their money without having to compromise their core beliefs and principles. For further information about the meaning of responsible investing see The Definition of Socially Responsible Investing 

In addition to becoming important investing philosophy, responsible investing has developed into an economic mechanism for supervising corporate behaviour. Today, SRI provides an effective way to modify and control corporate behaviour and any potential antisocial and unethical business activity.  How has this happened? Providers of finance (banks, other financial institutions and investors) and company's stock holders (owners) have the ultimate power over corporations, and therefore can influence corporate business. By restricting and channelling funds away from disapproved activities, responsible control over company is exercised. In other words, if providers of finance are not willing to finance questionable business activities, companies may find it hard to execute their projects and further develop their business. Also, company's share price can be negatively affected by the investors' sentiment toward unethical or morally questionable business. Therefore, companies cannot afford to be publicly designated as socially irresponsible. 

Along with exercising corporate control, Socially Responsible Investing also serves as an important economic instrument for controlling free-market forces in developed economies. As companies' privatisation and markets' deregulation  emerged and moved the limits of how developed economies are regulated in late 20th century, politicians became aware that SRI is “an available mechanism that could put the genie of unregulated free-market forces back into the bottle of some kind of social restraint”, as Russell Sparkes wrote it Socially Responsible Investment – A Global Revolution (2002). 

In conclusion, Socially Responsible Investing is becoming an important segment of capital markets today, as it enables individual to invest without having to compromise his/her moral standards, and provides an effective supervision of corporate behaviour and free-market forces.