Social investing, also known as socially responsible investing (SRI), has been gaining popularity in recent years as investors seek to align their financial goals with their values. This approach involves considering not only a company's financial performance, but also its social and environmental impact when making investment decisions.
For risk averse investors, the idea of social investing may seem appealing. By focusing on companies that are committed to making a positive impact on society and the environment, these investors may believe they are reducing their overall risk exposure. After all, companies that prioritize social responsibility may be less likely to engage in unethical or unsustainable practices that could lead to financial losses.
But does social investing actually have an impact on stock performance for risk averse investors? The answer is not straightforward, as the relationship between social responsibility and financial performance is complex and can vary depending on a variety of factors.
One study, conducted by researchers at Harvard Business School, found that companies with strong social and environmental performance tend to have better financial performance over the long term. This suggests that investing in socially responsible companies may indeed lead to better returns for risk averse investors.
However, it is important to note that social investing is not without its challenges. Some critics argue that companies that prioritize social responsibility may sacrifice financial performance in the short term in order to meet their social and environmental goals. This could potentially lead to underperformance for investors who prioritize financial returns above all else.
Ultimately, the impact of social investing on stock performance for risk averse investors will depend on a variety of factors, including the specific companies and industries in which they choose to invest. While there is evidence to suggest that socially responsible companies can outperform their peers over the long term, investors should carefully consider their own financial goals and risk tolerance before incorporating social investing into their investment strategy.