Socially Responsible Investing (” SRI”) is investing, not only to maximize investor return, but to promote social good in the process.

INTRODUCTION

Typically, companies whose corporate policies support equality, environment and sound management practices, perform better financially.

As soon as this truth is widely recognized, larger institutions will start allocating more time, money and energy towards enhancing SRI research and creating more SRI products.

It soon became clear to me that the amount of information available out there was limited. There seems to be a misconception (and it’s a persistent one) that you give up investment performance if you invest in SRI when, actually, the opposite is true.

As a former financial advisor for a large broker dealer, I specialized in financial planning for non-profit organizations who wanted to invest in investment products that reflected their respective social values.

To my surprise, my firm had very little information available on socially responsible investing and the only piece of literature available was a list of 25-30 mutual fund companies that had one or more products under the larger umbrella of “socially responsible investing” without any other information.

A BRIEF HISTORY

Shareholder Activism.

If an investor is particularly concerned about the protecting the environment, they might choose to invest in a solar energy company.
Many people think that investing in companies that are promoting environmental or social causes means you have to sacrifice performance but actually the opposite appears to be true. Marc J. Lane, the author of Profitable Socially Responsible Investing found that companies who scored the highest for environmental and social issues actually performed better financially. Negative screening is just what the name suggests-weeding out companies whose corporate practices or products or services are not aligned with social good.

Negative screening is just what the name suggests-weeding out companies whose corporate practices or products or services are not aligned with social good. For most SRI investors this traditionally included tobacco, gun, defense, alcohol and gambling contractors. It’s also been expanded to include companies whose management has failed to promote employee equality, diversity or corporate or environmental responsibility.

There are essentially three SRI investment strategies:.

The Social Investment Forum attributes most of this growth to client demand and to a lesser extent legislation and regulation.

TRENDS.

Socially responsible investing got its start in the mid/late 1700’s during the slave trade when investors were encouraged not to participate in the practice and was later associated with religious institutions that recommended investors avoid “sinful” companies that produced guns, liquor or tobacco.

According to a recent study published by the Social Investment Forum, SRI continues to grow at a healthy pace. In the beginning of 2010, SRI assets reached over $3 trillion, which was an increase of more than 380 percent from $639 billion in 1995, the date of the first report issued by Social Investment Forum’s covering these statistics.
Since 2005, SRI assets have increased 34% while traditionally managed assets have increased only 3%. And from 2007 to the beginning of 2010 (during the recession), the increase in traditional, professionally managed assets was less than 1% compared to an increase of 13% in SRI assets. Today, about 1 in every 8 dollars is invested in some form of socially responsible investment.

INVESTMENT STRATEGIES.

Shareholder activism involves trying to influence change in corporate practices or policies by talking directly to management or by filing shareholder resolutions that are then voted on by the shareholders of the company. When the idea of shareholder activism was first introduced, the number of resolutions filed by shareholders was less than 20 annually. From 2008 to 2010, the Social Investment Forum reports that over 200 institutions filed shareholder proposals and many of the proposals are being adopted.

Today, about 1 in every 8 dollars is invested in some form of socially responsible investment.

In the 1960’s socially responsible investing evolved to take on greater social concerns of women’s equality, civil rights and labor equality, and in the 1970’s added environmental issues and global social concerns, such as apartheid in South Africa.
Since the 1990’s SRI has increasingly encompassed the broader arena of positive investments in the environment, social justice and corporate governance (commonly referred to as” ESG”, although I’ll be using the SRI label because it is still the term most widely recognized as of this writing.).

Positive screening involves actively seeking out companies that are doing good. It allows an investor to select companies whose corporate practices are aligned with their values. If an investor is particularly concerned about the protecting the environment, they might choose to invest in a solar energy company.
Many people think that investing in companies that are promoting environmental or social causes means you have to sacrifice performance but actually the opposite appears to be true. Marc J. Lane, the author of Profitable Socially Responsible Investing found that companies who scored the highest for environmental and social issues actually performed better financially. According to Lane, the stocks of those companies outperformed the Russell 3000 Index by more than 2.5% over the course of the eight year study he performed.

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