There is no denying that we are a consumer society. But is it possible to harness consumption as a vehicle for positive social change? A growing group of investors believe that Socially Responsible Investing (SRI) can pave the way for social change by funding environmentally and socially responsible companies. By making the shareholder’s voice an activist voice, screening for progressing-thinking companies and investing in communities, money can provide capital and momentum for a healthier world.
What is socially responsible investing (SRI)?
Investing and ethical commitments need not be mutually exclusive, say proponents of the growing SRI field. Amy Domini, founder of Domini Social Investments, LLC and one of the architects of the SRI movement explains, “It’s not the money that we’re interested in but the things the money can buy us, like cleaner air and a better quality of life” (Lohas Journal, July/August 2001).
How does it work?
Three key SRI strategies include portfolio screening, shareholder advocacy and community investment. Portfolio Screening allows an investor to avoid putting their investment dollars in companies that do not share their social concerns. If you don’t want to invest in companies that utilize sweatshops, you screen them out. Popular screens include tobacco, gambling, weapons, alcohol, environment, labor, human rights and animal welfare. Each SRI fund utilizes different screens so it is important to pick your priority issues and invest in a fund that shares your priorities.
Shareholder Advocacy means that as a shareholder you get to have a voice in setting the company’s priorities. Ultimately, a company is responsible to its shareholders. It makes sense but shareholders haven’t fully taken advantage of this voice. Activist groups have just begun to realize that shareholder activism is a viable means of affecting real change in corporate behavior. Recent “green” shareholder resolutions have included phasing out polyvinylchloride (PVC), adopting a comprehensive recycling strategy, phasing out chlorine bleached paper, disclosing costs of PCB cleanup delay, supporting renewable energy technologies and adopting toxic chemical policies. Other resolutions address global climate change, genetically engineered food and sweatshop labor.
Community Investment finances resources and opportunities for economically disadvantaged people. Community investors make it possible for local organizations to create jobs and provide financial services to economically disadvantaged people and supply capital for small businesses. Community investing may also fund affordable housing and community services like childcare. These local financial service organizations prioritize people who have been denied access to capital through traditional financial institutions and provide them with opportunities to borrow, save and invest in their own communities.
Are socially responsible investments sound investments?
There is no statistical difference between the performance of screened and unscreened portfolios, according to the Journal of Investing (Winter 1997). Rather, even with a down turned stock market (such as the one we’ve seen in the first half of 2001) socially and environmentally responsible mutual funds have actually outperformed all other mutual funds as a group, says the Social Investment Forum. Strong financial performances combined with shareholder activism, community investing and other activities might explain the growth of the SRI field in recent years. The total dollars involved in social investing have grown from about $65 billion in 1985 to $629 billion in 1995 to $1,185 trillion in 1997.
Where can I find financial professionals and institutions that do SRI?
The Social Investment Forum member directory (www.socialinvest.org) lists hundreds of money managers, financial planners, x funds and SRI practitioners. See also Social Funds run by SRI World group for breaking news, an investing center, community banking center, shareholder activism section and weekly e-mail news alerts. Good Money offers social profiles and performance data for select public companies.
|What You Can Do
* Consult a financial advisor before investing.
* Know your investment goals and know your risk preference.
* Use your shareholder voice. Friends of the Earth’s Shareholder Activism guide (www.foe.org/international/shareholder) will tell you how.