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Socially Responsible Investments: How To Quantify An Investments Impact



An investment is considered sustainable when it meets specific standards regarding its impact on society and the environment. 

As an investor, you have a responsibility to manage your portfolio responsibly and with the potential for future growth in mind. That’s why it’s important to assess investments based on sustainable standards. 

There are a number of ways you can look at your current portfolio and determine if a socially responsible investment is sustainable. 

Since sustainability goes beyond measuring financial performance, there are several key indicators that will help you determine if an investment is sustainable or not. They include:

Impact On Environment

The impact an investment will have on the environment can be measured in two key areas: resource depletion and pollution. Resource depletion is a concern when the company is mining and extracting natural resources, particularly minerals and metals. 

When the supply is depleted, the investment will have little to no future growth potential. This can result in a price increase, which is often passed on to consumers, though the companies may choose to reduce expenses (often by cutting employee wages). 

Pollution can also have a significant impact on the environment. When an investment is polluting, it’s generally negatively impacting nearby ecosystems, soil, and water sources. 

Not only is this a social justice concern, but it can also have a financial impact on the investment. If a company’s pollution is considered toxic, it can result in fines and cleanup costs that directly affect the company’s bottom line.

Amount of Waste Generated

A major indicator of sustainability is the amount of waste an investment generates. This waste can be anything from the paper used to print financial statements to the packaging used to ship products to customers. 

If the company has a high level of waste, it’s likely passing those costs onto the customer through higher prices, which can have a significant impact on your investment returns.

Employee Working Conditions

The specific investment may not be directly related to the environment, but it can still provide insight into whether a socially responsible investment is sustainable. 

The working conditions of the employees at the company are an indicator of sustainability. If the work environment is poor, employees may be more likely to make mistakes, require additional training, or leave the company

Does the company treat its employees fairly? Are they paid a living wage? Do they offer benefits? How does the company treat its employees in the long run? Does it offer opportunities for advancement? Are there opportunities to work remotely? 

All these factors can affect the company’s bottom line in the long run.

Carbon Footprint – User or Producer

By measuring a company’s carbon footprint, you can get a better idea of whether the investment is a sustainable one. The carbon footprint of a company’s operations accounts for the amount of carbon dioxide produced in the production of the company’s goods and services

That said, you need to determine if the company is a producer or a user. 

A producer is anything that creates greenhouse gases, such as a company that manufactures natural gas. A user is a company that extracts greenhouse gases from the atmosphere, like a company that uses natural gas. 

The Bottom Line

Socially responsible investments not only have the potential for growth, but also have the potential to be more stable and safe than other types of investments. So, when you’re evaluating an investment, it’s important to consider how it will impact society and the environment. 

By following the indicators above, you’ll be able to determine if an investment is sustainable or not.

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