Socially Responsible Investing
March 17, 2014
Last week, I discussed various types of social finance, including impact investing, in my blog posting. Similar to, but different from, impact investing is socially responsible investing - also sometimes called sustainable investing or green investing or ethical investing.
While impact investing focuses on investors supporting businesses that have both a financial and a social return (sometimes called social enterprises or social entrepreneurs), socially responsible investing is an investment strategy that considers both financial returns and social good in a broader set of publicly traded companies.
Wikipedia describes socially responsible investing (SRI) as "encouraging corporate practices that promote environmental stewardship, consumer protection, human rights, and diversity...[or] avoiding businesses involved with alcohol, tobacco, gambling, pornography, weapons, and the military. In addition to stock ownership either directly or through mutual funds, other key aspects of SRI include shareholder advocacy and community investing."
The idea of socially responsible investing actually goes back hundreds of years. Wikipedia notes that the Religious Society of Friends (Quakers) had policies in 1758 prohibiting members from participating in the slave trade or selling humans. And, one of the founders of Methodism, John Wesley, published a sermon on "The Use of Money" in the 1700s that outlined the basic tenets of social investing - not to harm your neighbor through your business practices and to avoid industries like tanning and chemical production, which can harm the health of workers.
The modern era of social investing evolved during the 1960s when some investors sought to address equality for women, civil rights and labor issues. Concerns about the war in Vietnam also caused some investors to pull out of companies (like military contractors) that were profiting from the war. Trillium Asset Management, one of the first socially responsible investment funds, was established in 1982 as a way for investors to match their money and their values. Recently, SRI has increasingly been defined as a means to promote environmentally sustainable development.
According to The Forum for Sustainable and Responsible Investment (US SIF), assets in "socially screened" portfolios climbed to $3.07 trillion at the start of 2013, a 34 percent increase since 2005. As of 2010, nearly one of every eight dollars under professional management in the U.S. is involved in socially responsible investing - 12.2 percent of the $25.2 trillion in total assets under management as tracked by Thomson Reuters Nelson. But, social investing is really a global phenomenon, and numerous SRI funds exist in many other countries throughout the world.
Amy Domini, founder and CEO of Domini Social Investments and an early pioneer in this space, lists a number of standards and principles driving investments in socially responsible companies. Domini's fundamental principles are the promotion of a society that values human dignity and the enrichment of our natural environment. She views these twin goals as crucial to a healthier, wealthier, and more sustainable world.
Social investment firms believe that companies will succeed and prosper in the long run if they do the following, among other things:
- Contribute to the local communities in which they are located
- Produce high-quality, safe and useful products
- Enrich the ecosystems on which they depend
- Invest in the health and development of their employees
- Treat their investors and lenders openly and transparently
- Strengthen the capabilities of their suppliers
Increasingly, private foundations and nonprofit organizations that have endowments are using the power of their portfolios to invest in sustainable and socially responsible businesses. In a recent report called Unleashing the Potential of US Foundation Endowments: Using Responsible Investment to Strengthen Endowment Oversight and Enhance Impact, US SIF notes that the number of foundations engaged in SRI has been growing over the years, and the report lists practical steps that foundation staff and trustees can take to help their institutions align a greater portion of their assets with their programmatic goals.
"This guide provides compelling examples of foundations that have made the commitment to utilize their endowments for positive social and environmental impact," said US SIF Foundation CEO Lisa Woll. "We hope that the information and tools provided in this report will motivate many more foundations to follow their example."
In sum, socially responsible investing is growing in both importance and impact, and both institutional and individual investors are finding ways of matching their values and their money for the good of society.
What do you think? Is socially responsible investing a good thing? Does it cause publicly traded companies to act differently? We would love to hear your comments here. Alternatively, you can follow me on Twitter at @timmcclimon and comment there. Thanks for reading and sharing this blog with friends and colleagues.
P.S. CSR Now! is going on spring break for the rest of this month. In place of new blog postings the next two weeks, we will republish my blog on "Resilience and Sustainability" from February 11, 2013 on March 24th and my posting entitled "Over the Cliff: More on Resilience" from February 19, 2013 on March 31st. CSR Now!" will be back with a new posting on April 7th.