Social finance involves investing in socially responsible regions, businesses, and practices while avoiding those that are not socially responsible. It includes funding initiatives that promote responsible actions and avoiding harmful activities such as child labor. Socially responsible investing is a part of social finance and can be done through socially responsible funds that focus on socially acceptable investments.
Investors are in the financial markets to make a profit, to be sure, but some are unwilling to engage in social issues that may result from investing. Social finance takes into account the larger picture of investment and is the practice of investing in socially responsible regions, businesses and practices. It is also marked by decisions to avoid investing in countries and companies that are not socially responsible, but have shown some inconsistencies in political, environmental, agricultural, or social behavior.
Social financing encompasses the extension of funds, whether loans, investments or donations, to initiatives that support responsible actions that will have a positive influence on the world. Financing can take different forms and can apply to different industries. As much as the practice of social finance promotes positive initiatives in a region, this type of financing avoids extending financing into places where harmful activity, such as child labor, may occur.
Furthermore, social finance can be applied to the agricultural system of a country. For example, a financial institution can only provide financing to regions where organic agriculture is promoted. The focus can also be on sustainable food behaviour, including harvesting in a way that is not harmful to the environment, people or animals. Furthermore, the hunger needs of the citizens of a region must be considered before using any agricultural crops for profit through the export of goods.
Socially responsible investing is a component of social finance. Investors large and small can take a position not to invest in regional economies where there is a suspicion that a government may be engaging in activities that run counter to national concerns, for example, the trade in nuclear weapons. Asset managers oversee money on behalf of investors and are allowed to direct that money in a particular way based on the mutual fund’s strategy. However, if an investor has money invested with an asset manager that allocates capital to controversial regions of the world, the investor may choose to redirect the money elsewhere upon learning of the exposure.
To avoid surprises when investing, there are investment vehicles known as socially responsible funds that focus exclusively on socially acceptable investments. These funds invest in socially responsible industries, such as renewable energy, and avoid investments in stocks that are considered harmful in any way. For example, a socially responsible fund may include exposure to alternative energy, but will avoid investing in tobacco stocks because of the damage secondhand smoke can have on the environment and other people.
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