Socially Responsible Investing

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Socially responsible investing is an investment strategy that integrates social, environmental and corporate governance criteria into financial analysis. Socially responsible investors choosing their investments looking not only at profitability but also considering the social and environmental impacts of the organisations they invest in.

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[edit] Why should I be aware of this?

Just as many people are exhibiting their values by buying organic foods, driving hybrid cars, or choosing energy efficient appliance, they are also basing their investment decisions on their ethics and belief system. Also called ethical investing, socially aware investing, or “green” investing, it indicates an attitude to investing that combines intentions to maximise returns and social and environmental good. More and more, investors are trying to align their investments with organisations based on their products and services, their environmental impact and policies, labour relations and human rights records, and community involvement.

[edit] All about socially responsible investing

Socially Responsible Investing (SRI) has developed over time and is rapidly gaining momentum. The roots of SRI can probably be traced back to ‘sin stocks’ when churches and religious organisations disinvested from alcohol, gambling and tobacco in the 1920’s.

More recently, in the 1970’s and 1980’s, the environmental movement has propelled SRI, and in the current day most important financial publications are giving SRI more mainstream coverage than ever before.

Another major shift since the ‘sin stock’ disinvestments is that SRI is changing from ‘avoidance’ selections to ‘inclusionary’ selections. This means investors who were previously avoiding certain stocks because of the products they were associated with, are now choosing to include stocks with leading products, policies and practices.

[edit] The future of SRI

It is believed that the future of SRI is bright and the trend is expected to great momentum in the coming years. Institutional investors such as foundations, universities, hospitals and insurance are the largest growing segment within the scope of SRI.

Essentially SRI is continuing to emerge as a response to the increasing globalisation of finance and the changing expectations from corporations and their visible environmental and social impact. Also as social and environmental performance is becoming an area of differentiation among organisations, and consumers and investors are increasingly going “green”, SRI may end up being integrated into mainstream financial analysis.

Though SRI has developed fairly well within developed markets, it is still acquiring definite shape within emerging markets. However, with increasing investment interest in emerging economies, socially responsible investors will also expand their focus towards these markets. At the same time, organisations in emerging economies will have to become increasingly aware of about their social responsibilities.

[edit] Major criticisms

One of the major criticisms of SRI’s is that the deterioration of the return-risk trade off for the investor. Similar criticism has also been levelled at corporation engaging in corporate social responsibility (CSR). Classically, organisations have been expected to fundamentally concentrate of maximisation of profits. Similarly, stakeholders, for best returns must seek investments based return considerations only. However, given the increased pressure on limited natural resources, initiatives of SRI and CSR and now being viewed as the way forward.

Initially, socially responsible stocks carried a reputation of poor performance. However, recent data from a fund tracking and research firm Lipper has shown that returns from SRI funds are now competitive with—and, in some cases, have even outperformed—the overall stock market. This will hopefully turn the spotlight on the 'triple bottom line' - describing the social, environmental and economic performance of an organisation.

[edit] What can I do?

Here are a few things to keep in mind when you’re preparing to become a socially responsible investor:

  • Screening

Screening involves choosing investments (stocks and mutual funds) not based on earning potential but also corporate governance, environmental and social criteria. For example, investors may choose not to buy stocks of companies that make violent video games, weapons or tobacco in favour of companies producing renewable energy, conservation and health care. Also, considerations are given to organisations that have for example, good employer-employee relations, pollution control and good environmental practices.

  • Share holder advocacy

As a shareholder, investors own a small portion of the company. By joining other shareholders, investors can have a say and make changes in the company. Share holder advocacy can take many forms including casting a vote/proxy voting as a company shareholder, writing a letter or making phone calls and garnering media attention to get an issue on the radar. The idea is to ensure that organisation makes resolutions improving policies and practices.

  • Community Investing

Community investing involves directing capital toward communities that are underserved by traditional credit markets. This is done for the development of the community, creation of jobs, housing and healthcare. Often investors accept slightly below market rates of return in order to encourage community development.

  • Social venture capital

This involves investing in the early stages of a company that has found a profitable way of meeting environmental needs. For example, investing in an alternative energy company before it is publicly traded. In this way, these companies receive assistance to grow and investors may secure healthy returns.

As research continues in the field of SRI, there are a number of resources available to investors to make informed decisions. There are a number of indices that show company ranking to base socially responsible investments.

[edit] CopperBytes

  • The Socially Responsible Investing approach encompasses an estimated $2.71 trillion out of $25.1 trillion in the U.S. investment marketplace today.
  • From 2005 to 2007, social investing enjoyed a growth rate of 18-perecent
  • Community investing is the fastest growing area of SRI
  • Institutional investors are the largest growing segment within SRI

[edit] References

  • An Introduction to Socially responsible Investing
  • Socially responsible investing
  • Socially Responsible Investing
  • SRI Facts
  • Socially Responsible Investment
  • The International Handbook on Environmental Technology Management by Dora Marinova, David Annandale and John Phillimore
  • Sustainability Dictionary

[edit] SRI Companies

  • Calvert: Firm offering 30+ mutual funds
  • Effective Assets:Financial Planning
  • Girton Capital Management Inc. Green and socially responsible investment management
  • Parnassus Investments: Doing well by doing good
  • Pax World Funds: Allowing investors to align their goals with their values
  • Portfolio 21: Global mutual fund investing in a sustainable future
  • Progressive Asset Management Inc. Full service socially responsible investing
  • Rudolf Steiner: Earn a financial return and help the world
  • The Social Equity Group: SRI investment service, green and accesible
  • Trillium Asset Management: Investing for a better world
  • UBS Financial Services: Investment bank & global asset management
  • Winslow Management Company: Winslow green growth fund

[edit] Related Online Resources

  • Calvert Foundation: Non-profit investment into low income communities
  • Conscious Foundation: Values and vision about finances
  • Green Money Journal: Social, environmental investing and consumer information
  • Natural Capital Insitute: Research into practices of SRI companies
  • Permaculture Credit Union: Credit union dedicated to the ethics of permaculture
  • Responsible Investing:Complete database of SRI company holdings
  • Wendel, Rosen, Black & Dean, LLP: Legal services for sustainable businesses

[edit] See Also