One of the fastest growing investment concepts to emerge in the last few years is the area of Socially Responsible Investing (SRI) which some people refer to as ethical investing. Recent studies show that this segment of the investment market is growing at twice the rate of the total investment market.
So, what is SRI? Simply put, it is the practice of incorporating a person’s beliefs and values into their investment portfolio. This can reflect someone’s wishes to exclude a particular industry from their portfolio (eg. tobacco manufacturers or military contractors) or to include only companies with excellent records on international human rights (eg. sweat shops) or environmental impact.
A person’s motivation for doing this may be purely personal or it may stem from a societal-impact view. On the personal side, someone who has witnessed the negative effects of gambling on another person or family may choose to exclude any companies that derive revenue from the gaming industry from their portfolio. From the societal impact side, an investor may want to look for companies which respect the diversity of our society as a whole and have programs in place to ensure that there is fair representation of all types of persons within the company. Still others may choose this approach because of their religious convictions and another group may be looking for ways to support only those companies that respect the natural environment wherever they operate.
Whatever your motivation, the number of mutual funds available for investors who wish to incorporate their social, ethical and environmental concerns into their investment decisions has never been larger than it is now and the diversity of concerns that one can incorporate into their portfolio continues to grow. What was once a niche movement is quickly becoming mainstream.
The number one question that most people ask about SRI is, “What effect will this have on my return?” Good news! There is a growing body of evidence that suggest that there will likely be no impact on your return; or, if there is an impact, it may be a positive one. Socially screened indices in the United States have consistently outperformed their non-screened comparative indices by significant margins. For example, the Domini Social Index in the United States is an index of 400 companies screened according to a number of social and environmental criteria. Over the ten year period ended October 31, 2006, this index averaged 9.02% per year while the Standard and Poor 500 averaged only 8.66%. (Source www.kld.com)
Could it be true that companies with better environmental policies and more effective employee programs have more efficient workforces and are less likely to be the subject of negative press and lawsuits and thus, generate higher returns for their shareholders. Whatever the future financial returns, many SRI investors appreciate that they are also able to get a good social return on their money. In effect, they have a triple bottom line when it comes to their investments: financial, environmental and social returns weigh into their investment decisions.
If you have never thought about this or have a current portfolio that you believe may be inconsistent with your views on a number of social, ethical or environmental issues, please feel free to contact me. Rest assured, you will not be alone in your efforts to use your investments to shape the future. Remember the old saying, “Money makes the world go around”. Well, some of that is your money, so you should be able to have some say in its impact on the world.
