Socially Responsible Investing (SRI) has skyrocketed over the past ten years. 10% of all investments, approximately $229 trillion, qualify as SRI. There are currently 221 SRI mutual funds available for individual investors. So what, more specifically, is SRI -- other than an attempt to combine money and morals, not always an easy mix? All SRI options agree upon three broad requirements.
1. There must be some sort of screening process that examines a company's business practices to see if it meets with the social agenda of investors. Social research is just as important as fundamental financial research in SRI. One of the more common screens is to examine companies in terms of their environmental records, as well as their human rights records. Companies marketing themselves as SRI companies generally have a positive gender equity policy, and are heavily involved in social welfare programs in the communities in which they operate. There are no agreed-upon criteria for SRI other than those imposed by potential investors.
Many socially responsible investors look for companies with liberal human resource policies, including domestic partner benefits. Other socially responsible investors look at a company's track record of political contributions. Still other socially responsible investors weed out companies that deal in tobacco, pornography, or environmentally negative products. For years, British Petroleum marketed itself as an acceptable SRI company. "We answer to our shareholders and 6 billion other people." BP makes NO political contributions anywhere in the world, the only big oil company that can make that claim. Turns out BP wasn't making maintenance contributions either. So much for environmentally friendly policies.
Sometimes SRI is very conservative. The Ave Maria Funds, a Catholic investment choice, screen out any and all companies that deal with any abortion related products, that contribute to planned parenthood, that deal with pornography, that offer domestic partnership benefits.
2. All SRI options must be open to shareholder advocacy. Socially responsible investors are by definition activist shareholders interested in more than just acceptable rates of return. They seek to do good as they define it, and want corporate boards that are very responsive to shareholder interests. One major shareholder concern deals with sustainability in both manufacturing and operational practices. Corporate governance must be relatively transparent to socially responsible shareholders.
3. SRI also includes investments in the communities in which the companies operate. SRI companies want to be known as good corporate citizens. A percentage of the profits are plowed back into community welfare programs of all kinds. There is a double bottom line for companies marketing themselves as socially responsible. The social bottom line is as important as the financial.
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Reader Comments (Page 1 of 1)
10-12-2006 @ 12:18AM
Mike Wallace said...
The market has shifted to a point where "SRI" is becoming mainstream. In fact, several recent reports from Wall Street, as well as actions by traditional investors indicate that good performance on these types of intagible issues can be a proxy for good corporate governance. In addition, quantifiable environmental data is so readily available from corporate reports that investors wonder about those companies that do not report. If a company is not reporting (in corporate governance speak - not transparent), yet many of their peers are, should an investor be concerned? Is the company aware that many environmental issues are quantifiable and financially significant? is the company aware that many of their peers are reporting? is the company worried that it's performance may be seen as weak? are the CEO, CFO and BOD aware that hundreds of other companies are reporting detailed information about their environmental performance? Are these companies aware that groups of investors representing trillions of dollars are monitoring the environmental practices of public companies and connecting enviromental reporting, performance and transparency to corporate governance performance?
(See: Carbon Disclosure Project, Investor Network on Climate Risk and Principles for Responsible Investment). Are these companies aware that entire portfilios are being measured for their environmental and carbon footprints (See: www.henderson.com/home/sri/).
We're at witnessing a watershed moment where mainstream investors are seeing the financial opportunities of this added level of due diligence.
9-06-2006 @ 10:33AM
Mark Brandon said...
While this article is certainly a good starting point, there is much to consider. First, the screening aspect is an examination of your social values in a way that you probably have not considered. What is social responsibility? It is different to all people. Should I screen an industry that does not conform to my social values, or should I reward the best performers of that industry? Should I be about negative screening, which is pruning the companies that do not match my values, or should I undertake a positive screening strategy, which is actively seeking out those companies that do conform. There is a big difference.
Should I get in with one of the fine SRI mutual funds, or should I have a separately managed account? The former requires that you buy into someone else's definition of social responsibility.
If one is interested in SRI, you should retain one of the many fine advisers that specialize in SRI. Shameless plug ahead: First Sustainable (www.firstsustainable.com) is a good one.
Mark
http://sustainablelog.blogspot.com
News and Views for Socially Responsible Investors.
9-06-2006 @ 10:38AM
Mark Lobban said...
All investment seeks a return. Quite simply what is a better investment than financial return for helping to heal the earth socially and environmentally?
We would be blind not to recognise making money can harm the future. Unless there is a way to measure if the resources consumed in the business done were harming the planet socially or environmentally, we could be investing in our gain at the expense of ecosystems that support the future financial and environmental health of what we take for granted in our dialy lives. Investments that measure the environmental and social consequences and value them are better, smarter, and help you as an individual make the biggest difference. Bless you if you can appreciate this wisdom in what you do everyday.
Cheers,
Mark Lobban
9-06-2006 @ 11:26AM
Steve Schueth said...
The socially responsible investment industry has grown dramatically in recent years and provides an exciting and rewarding opportunity for investors to earn double bottom line returns. However, it would be good if the typo in the first line of Ms. Erhart's post could be corrected. The most recent bi-annual Trends Report published by the Social Investment Forum (www.socialinvest.org) identifies $2.29 trillion in investment assets under professional management using SRI investment criteria (9.4% of total assets under professional managemnet in the United States). There's a lot more in other countries, especially the UK, western Europe, and Australia.
We all know that corporations may have either a positive or negative impact on people, communities, and our natural environment. Investment capital can be used to finance socially desirable or socially destructive businesses. Those of us who understand that the ways we spend and invest can dramatically influence the fabric as well as the consciousness of society are now becoming commonly described as "socially conscious."
Socially conscious investors generally believe that in addition to the benefits of ownership, investors bear responsibility for the impact their money has in the world. We believe that as investors we can make a meaningful difference by consciously directing investment capital toward enterprises that contribute to a clean, healthy environment, treat people fairly, embrace equal opportunity, produce safe and useful products, and support efforts to promote world peace. And we are putting our money to work toward the dual objectives of making money and making a difference.
9-06-2006 @ 11:55PM
Rohan said...
All and any screening process for all types of investments (especially online-considering the number of ongoing scams) is not just a welcome but a necessity.
I have often outlined key parameters along with just the screening process for any company to meet, so as to be eligible for investment.
Past records definitely speak for themselves, which may not mean a good future performance (which again is determined by a lot of market factors) nonetheless those are not important at this stage, pivotal is how the company stands up to such changes, continues to outperform itself and generate those (if not promised) atleast "close to the mark" anticipated/hoped returns.
How much efforts the management puts in the whole process.
I subscribe to google stock alerts and although I do come across quite a few good ones, its not necessary that they pass all "pre-determined" parameters. But then again, instinct also plays a major role, and it all boils down to a whole "package" which the company presents to me as far as the screening process is concerned.
Personally, I prefer to stick to fast growth, sun shine industries with a newer concept and on more than one occasion have been rewarded by choosing such companies all due to the "skyrocketing value" of stocks they represent.
Rohan.
http://tinyurl.com/r8ndk
http://way2income.com
http://forex4riches.com