Socially responsible investing

SRI

Socially responsible investing (SRI) is an investment strategy that considers the social and environmental consequences of where your investment dollars go.  SRI investors seek to align portfolios with personal values—supporting progressive businesses while steering clear of companies operating outside one’s ethical bounds.

The three most common strategies for SRI are screening, shareholder advocacy, and community investment.

Screening

  
pax world mutual fund offers investors a variety of investment opportunities with forward-thinking companies that meet positive standards of corporate responsibility
 SocialFunds.com provides an exhaustive list of SRI funds, with a brief description of the screening criteria applied to each. 

Screening involves choosing investments (most commonly, stocks) based not just on companies’ earning potential, but also on specific social and environmental criteria.  Investors might, for example, stay away from companies that manufacture violent video games or tobacco products.  Conversely, they might seek out companies that produce renewable energy.  Typical factors to consider, in addition to the social and environmental impacts of its products, are a company’s environmental practices, human rights record, labor relations, and degree of community involvement.

Most often, socially responsible investors rely on investment firms to create funds tailored to their concerns.Be forewarned: not all socially responsible funds are alike.  The goal of some is more modest—to screen out the rottenest eggs—while others are “brilliant green” and only include the most progressive companies.

Shareholder advocacy

By holding shares in a company, an investor owns a portion – albeit small – of that company. By joining with other part-owners with similar ideals, shareholders can begin to make real change in what “their” companies do.

One strategy is to file shareholder resolutions that encourage or require a company to take specific actions1. The goal of such advocacy is not limited to passing the resolutions—indeed, those submitting the resolutions often go in knowing they will fall well short of the votes required for passage. The aim can be simply to get the issue on the radar screen—create public awareness, garner media attention, and prompt a dialog with corporate decision-makers and other key stakeholders.

Community Investment

According to the Community Investing Center,

"Community investing is capital from investors that is directed to communities underserved by traditional financial services. It provides access to credit, equity, capital, and basic banking products that these communities would otherwise not have. In the U.S. and around the world, community investing makes it possible for local organizations to provide financial services to low-income individuals, and to supply capital for small businesses and vital community services, such as child care, affordable housing, and healthcare."

Assets in community investing institutions have risen from $4 billion in 1995 to $19.6 billion in 20052.

Why it’s important

Choosing where to invest one’s money can be an intimidating task, involving educated guesswork and more than a few leaps of faith.  Most everybody is concerned with achieving a satisfactory rate of return.  More and more investors are also seeking assurances that their money will support positive enterprises. Socially conscious investors feel that they bear responsibility for the impact their money has in the world. They believe they can make a meaningful difference by directing investment capital toward enterprises that contribute to a cleaner environment, higher quality of life, and social justice.

The good news is that socially responsible investing is on the rise. Today, $2.3 trillion—nearly one out of every ten dollars under professional investment management in the United States—is involved in SRI, using one of the three core strategies of screening, shareholder advocacy, and community investing3.

Learn more

Sources
  1. SEC rules state that those filing a shareholder resolution must hold at least $2000, or 1%, of a company’s stock. http://www.law.uc.edu/CCL/34ActRls/rule14a-8.html
  2. Social Investment Forum Industry Research Program 2005 Report on Socially Responsible Investing Trends in the United States. January 2006. http://www.socialinvest.org/areas/research/trends/sri_trends_report_2005.pdf
  3. Social Investment Forum Industry Research Program 2005 Report on Socially Responsible Investing Trends in the United States. January 2006. http://www.socialinvest.org/areas/research/trends/sri_trends_report_2005.pdf

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