Are You Making Socially Responsible Investments?
18 March 2008
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Money talks. It’s the most powerful way to express an opinion about consumer goods — don’t buy it if you don’t like it — or political candidates — don’t contribute to their campaigns if you don’t like them. A lot of people seem to have been taking that idea to a further end with socially responsible investing. SRI focuses on more than just the return you’ll get on your investment; it examines whether the company in question is a polluter, destroys communities or is otherwise socially irresponsible. I think it’s a pretty cool concept. Promoting good ideals and making money at the same time? What is there to dislike?
As good as SRI is on paper, though, it can be a bit more effort than traditional investing. In addition to keeping track of how fiscally responsible a company is, you have to go to the added effort of tracking the company’s methods. Just figuring out whether a large company recycles can turn into a huge headache. There are plenty of websites out there with lists of socially responsible stocks, though. Some even go to the effort of breaking specific SRIs down in to categories like environmentally-friendly, cruelty-free, and women-oriented.
Personally, though, I have a preference for mutual funds and there’s been fewer resources until fairly recently. However, a number of funds focused on SRI have popped up recently:
There are plenty more: these are just a few of the larger and more reputable firms I’ve run across. There are also funds that, like stocks, are categorized with particular SRI qualities, such as green. The most useful tool, though, that I’ve seen is Calvert’s Know What You Own service. Calvert maintains information on a large number of mutual funds and can tell you the details of just what your mutual fund has you invested in — which might be a big deal if you chose a fund that isn’t socially responsible. There are also some SRI funds that are little more than scams, and Calvert can warn you off of some of them.
I’m not against investing in regular mutual funds or stocks, of course, but there are certain activities I know that I wouldn’t want my money used for — and I’m pretty certain that a company run by people who are willing to work around their social responsibility is run by people who might be willing to be less than ethical in other parts of their business as well. I think that SRI is the easiest way to figure out what you’re really funding.
Great post Thursday. Socially responsible investing is an interesting idea, I’m just not sure it translates into a good investment strategy. Have you run across any SRI index funds? Even then, I’m not sure most people would be happy with SRI fund returns.
For example, most businesses recycle anything that has value. They simply can’t afford to. Similarly, no company intentionally pollutes more than they have to. It comes down to a cost vs rewards decision—some pollution is inevitable.
So I would expect SRI approved companies to offer lower returns to investors over the long haul. If a company is choosing to spend more money and resources to recycle materials that could be bought more cheaply elsewhere, then that is less profit that can be passed on to investors.
Personally, I’d prefer to earn more so I can make a personal impact on the world.
Aaron,
I think that SRI can be a decent investment strategy, though I agree you might not get quite as high of returns as you could otherwise.
For a lot of people, it just comes down to how they want to make their impact. For some people, their investments might be the best way for them to affect the world.
You’re right, it’s all about freedom which I’m a big fan of. Unfortunately, time will need to pass before people realize how generous their strategy really was.
I believe it is important to apply our personal values to investing. The reason for this is that when we invest in a company, or many companies in the case of a mutual fund, we share in the responsibility for the activities of those companies as well as participate in the outcomes of their corporate actions.
Furthermore, if individual investors show their preference to investing in companies with higher ethics, it spurs the entire business community towards higher ethical standards.
I’ve been following this subject for about forty years. You and your readers might like to visit my website which covers the latest global SRI news and research. It’s at http://investingforthesoul.com/
My best wishes to you and your students. Ron Robins
PS There is a substantial body of independent research showing that SRI usually performs as well, even sometimes better, than conventional investing strategies. I have references to this research in ‘Archives’ in the above site.
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