Socially Responsible Investing

The origins of what has become known as socially responsible investing date back to ancient times. In Biblical times, Jewish law laid down many directives about how to invest ethically.

Religious investors whose traditions embrace peace and nonviolence have avoided investing in enterprises that profit from products designed to enslave or kill fellow human beings. The Quakers have never condoned investing in slavery or war; Methodists have been managing money in the U.S. using what are now referred to as “social screens” for over two hundred years; and Islamic tradition prohibits investing in companies charging interest.

The modern roots of socially responsible investing can be traced to the impassioned political climate of the 1960s. During that tumultuous decade, a series of movements changed the nation’s consciousness about social responsibility and accountability. Concerns regarding the Vietnam War, civil rights, and equality for women were broadened during the 1970s to include disarmament, fair labor, and the environment.

The ranks of socially concerned investors grew dramatically throughout the 1980s as millions of people, churches, universities, cities, and states focused investment strategies on pressuring the white minority government of South Africa to dismantle its racist system of apartheid.

With the Bhopal, Chernobyl, and Exxon Valdez incidents and new information about the global warming crisis, the environment moved to the forefront of the minds of socially concerned investors. Millions of people began embracing the concept of socially responsible investing. Mutual funds and money managers arose to help investors channel their capital toward enterprises that contribute to a sustainable environment and a just world.

Socially responsible investing can be most succinctly defined as the process of integrating personal values, societal concerns, and/or institutional mission into investment decision-making. This process considers the social and environmental consequences of investments, both positive and negative, within the context of rigorous financial analysis.

Social screening involves adding a qualitative analysis of corporate policies to the traditional quantitative analysis of profit potential. Qualitative screening helps us understand the corporate character and often helps us identify better-managed companies. A double-bottom-line (financial and social) analysis provides the basis for designing investment portfolios aligned with investors’ values while seeking to achieve their financial goals.

Shareholder advocacy efforts include dialogue with companies and submitting and voting on proxy resolutions designed to positively influence corporate behavior. Socially conscious investors often work together to improve financial performance over time and enhance the well-being of all stakeholders—customers, employees, vendors, communities, the natural environment, and stockholders.

Community investing directs capital to people in low-income communities who have difficulty accessing it through conventional channels. Many socially conscious investors earmark a percentage of their investments to community development financial institutions (CDFIs) that work to alleviate poverty, create jobs, provide affordable housing, and finance small business development.

Over the last two decades, socially responsible investing, or sustainable investing, has grown dramatically. The 2005 SIF Trend Report reported that assets under professional management involved in socially responsible investing in the U.S. grew from $639 billion to over $2 trillion between 1995 and 2005, an increase of 249%. By 2014, that had grown to more than $6 trillion.

According to the US SIF 2020 SRI Trends Report, one out of every three dollars under professional management in the United States—$17.1 trillion—was managed according to sustainable investing strategies.

Many academic studies, combined with real-world results, have effectively refuted the contention that social screening hurts performance. Numerous studies have shown that SRI can enhance performance in some cases.

Over 200 mutual funds are now available for socially conscious investors. This allows a broad range of choices to meet almost all investment needs and will enable investors to diversify to reduce their market risk. SRI choices are offered in the full range of retirement plans, college accounts, and portfolio management.

A large and growing population is spiritually yearning to integrate personal values into all aspects of life, including finance and investing. Over 50 million people now identify as “Cultural Creatives” interested in supporting sustainable societies in all aspects of their lives.

Numerous recent accounting frauds and other scandals have eroded trust in company leadership. Many investors are attracted to an investment process based on research that examines corporate policies more deeply.

Socially responsible investing has increased along with increasing public interest in alternative energy, natural foods, sustainable building, and alternative healthcare, providing new inspiration and expanded investment opportunities.

Socially conscious investors are most satisfied with investments that reach beyond purely financial goals to address ethical concerns, no matter how large or small. Fortunately, making money and making a difference with your money has never been easier.

Working with The Social Equity Group can help you plan and implement investment strategies to achieve your goals. Don’t hesitate to contact us for an investment professional with expertise in integrating personal values and social priorities into investment decision-making.