Socially Responsible Investing

What is socially responsible investing, or SRI? Simply put, it's the practice of investing assets for the purpose of realizing not only financial but also social returns. This type of investing attempts to harmonize an individual's personal values with his or her financial goals for the betterment of the local community, society, or perhaps even the entire planet. Investment varieties and opportunities are as wide and diverse as participating investors' societal concerns, spanning the entire gamut from the fair treatment of employees to non-polluting methods of manufacture, from employing ethical business practices to selling environmentally-friendly products, and beyond.

Although a relatively new buzzword in the business and investing sectors, when traced back to its roots it become evident that SRI is actually anything but new. Responsible conduct in business is by no means a modern initiative. The laws of the ancient Jewish people demanded fair and ethical conduct in all matters of commerce. For instance, there were warnings against over-planting of fields, mistreatment of beasts of burden, and usury practices. Somewhat more recently, the Quakers were guided in business dealings by their beliefs in fairness and human equality. During the 20th century, social and political pressures were a major factor in the campaign to eliminate Apartheid that was brought to bear on the nation of South Africa.

Today, one only need read the front page of the newspaper, turn on the television, or look out a window to get an idea of the myriad social and environmental problems that spur more and more investors to adopt a proactive attitude toward those concerns. Global warming, strip mining, the destruction of rain forests, toxic waste, the near slave-like conditions of some third-world manufacturing operations, diversity and equity in the workplace, etc.; socially responsible investors can choose from a list of personal interests that goes on and on.

There are generally three basic strategies that investors use to implement their social values. They are (in no particular order): screening, shareholder activism, and community investing. Screening is the process of choosing (or eliminating) securities based on social or environmental criteria, such as a company's policies and procedures with regard to, for example, animal rights, water pollution, employee treatment, or any other topic the investor has an interest in. Because this strategy typically requires extensive and specific knowledge about an organization's operating practices, most individuals who employ it entrust their investments to the professional management offered by mutual funds.

Socially conscious investors utilize shareholder activism to take advantage of their equity position in a company for the purpose of advocating to management their particular positions on matters of social or environmental concern.

Community investing provides an avenue for investors to render aid to residents of low-income communities. Such areas may be villages in underdeveloped countries or depressed neighborhoods of local cities. This type of investing allows the socially responsible investor to apply his or her money at the "grass roots" level; as such, of all the SRI strategies, it offers the most direct course to "social" returns, which can be a source of significant personal satisfaction for the investor.

Combining social and financial goals – which is also known as a double bottom line – is the heart of socially responsible investing. Conventional wisdom of the past has nearly always held that these two tenets could not co-exist successfully, that one would invariably thrive at the expense of the other. This viewpoint, however, is rapidly changing. Many socially responsible funds, indexes, and other types of securities have performed remarkably well, and as this segment of the investing marketplace continues to attract more participants with more money to invest, the "green" is likely to spread to even more places around the globe.


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