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Socially Responsible Investments & Scotland’s Stock Exchange

December 27, 2019

Scotland, once home to a vibrant and thriving stock exchange, is set to get its first new stock exchange in nearly 50 years.

Founder Tomas Carruthers plans to create a Scottish Stock Exchange which will list securities that contribute to the social good through environmental or social initiatives.

Billed as the stock exchange for the 21st century, Project Heather looks to incorporate 'impact' to 'risk and reward'.

Project Heather’s Key Attributes

Scotland last had a Stock Exchange in 1973, when regional markets were incorporated into the London Stock Exchange.

Project Heather plans to bring back the Scottish Stock Exchange to Edinburgh, Europe’s 4th largest financial centre. Edinburgh’s booming technology, creatives and science markets could serve as the perfect location for an ethically focused Stock Exchange.

While Project Heather will be in Scotland, the exchange is designed for a global reach and openly calls for businesses, investors, and advisors focused on ‘impact, visibility and access for all.’

If successful, Project Heather would be the first regulated investment exchange exclusively for businesses with a measurable positive social and environmental impact. Listed companies would be required to report their impact as well as financial results to become part of the exchange.

The Scottish government has already expressed its support of the initiative by committing £750,000 to create 45 new jobs at Project Heather.

But, is socially responsible investing a good idea?

 

What are Socially Responsible Investments?

Social Responsible Investing (SRI) makes it possible for investors to support companies contributing to the social good. A concept that’s increasingly grown in popularity following the wake of dodgy deals, corrupt institutions and even investment fraud.

To qualify as “socially responsible” businesses, companies must abide by the UN’s seventeen sustainable development goals (SDGs) which cover everything from tackling poverty to abolishing world hunger, improving education and building sustainable cities.

SDGs create a clear framework that encourages companies to go beyond simply focusing on their bottom line. Rather than caring only about economic and financial growth, socially responsible companies work together to create a better world.

More specifically, SDGs are underpinned by five core themes:

1) People. Reducing poverty, eradicating hunger, and ensuring all humans exist with equal rights.

2) Planet. Safeguarding our world from environmental decline via sustainable consumption and limiting the use of natural resources.

3) Prosperity. Championing equality so all humans can enjoy economic, technological and social progress.

4) Peace. Building peaceful and inclusive societies, free from fear or violence.

5) Partnership. Establishing a global alliance for sustainable development in areas of extreme poverty and vulnerability.

Importantly, companies cannot only focus on one pillar but must embrace all of these themes and achieve an overall, well-rounded social impact.

Are Sustainable Investments a Good Idea?

Sounds great, right?!

Who wouldn’t want to use their money for good by investing in socially responsible companies?

But, let’s look at the pros and cons investors should consider before diving in headfirst.

Neutral: Social Enterprises are More Complex

Social enterprises are often far more complex than traditional corporations, which creates unique vulnerabilities. For a Stock Exchange focused on social good to work, it would need robust safeguards to stop the system from being exploited.

 

Con: Ethics Can Outweigh Performance

When investors commit to socially responsible investors, it tends to be an all or nothing approach. And, while a passion for socially responsible companies is great, it can also cause investors to become blinded.

 

Limiting your investment options to companies with a social impact could mean having to sacrifice financial returns or ROI.

Research from Seeking Alpha shows that socially responsible companies typically underperform on standard indices across a three, five and ten year period. This doesn’t apply to all socially responsible companies and SRI investors could still see good returns.

However, it’s important to conduct thorough research and truly consider both a company’s social impact and financial potential. Otherwise, socially responsible investing can easily turn into a money pit.

 

Pro: You’re Supporting Important Initiatives

Socially responsible companies rely on investments and funding to keep their doors open. But sometimes struggle to secure funding when investors focus solely on financial performance rather than taking a more balanced view.

Choosing socially responsible investing allows you to champion social good and support your personal values — essentially, putting your money where your mouth is.

You can sleep easy at night knowing your money is supporting companies to continue with their good work and benefiting society.

Think Carefully about Any Investments

Regardless of whether you think socially responsible investing is a good thing, it’s important to do your research before making any investment.

You don’t want to discover you’re supporting a company involved in arms dealings or other questionable practices. Nor do you want to only focus on a company’s ethical values and forgo any financial returns.

Achieving a healthy investment portfolio is all about weighing the pros and cons and making decisions you feel comfortable with.

 

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