Socially Responsible Investing

"I believe that investors are coming to the understanding that investing in the marketplace is a creative act, a vote for the kind of world you want to live in."  (Stuart Valentine)

If you are like most Americans chances are you have heard of Socially Responsible Investing (SRI). Further, it is probable that you have not yet fully committed your investment dollars to the SRI concept. Hopefully this article will help you gain clarity and a commitment to action towards what is at once a broad social movement and at the same time an intensely personal process.

Growth of Socially Responsible Investing

Just what is at the heart of the enthusiasm surrounding SRI? I believe it is that investors are coming to understand that investing in the marketplace is a creative act, a vote for the kind of world you want to live in. Currently 53% of American households have some form of stock ownership. The implication of this ownership is encouraging. Stockholders, driven by the principles of SRI, are more empowered to realize the ideal of participatory capitalism at the level of the common stockholder. Today, the three primary tools deployed by the SRI industry are: portfolio screening, shareholder activism and community/impact investments. Judging by the numbers the SRI movement is catching on. At the end of 1997 roughly $1 trillion was invested under the banner of SRI. Today that number has topped $3.07 trillion (1)

Portfolio Screening

The practice of portfolio screening utilizes both negative or avoidance screening and proactive, positive screening when selecting specific companies for investment. Avoidance screening has been the dominant practice whereby the manager avoids companies whose policies are not consistent with the investor's values or ethical standards. Nuclear power, weapons manufacturing and animal testing are a few examples of avoidance screening used by SRI investors (2). Perhaps, the most powerful historical display of how avoidance screening can effect real social change was its contribution in ending Apartheid in South Africa. Through the practice of divesting from international corporations doing business in South Africa investors financially penalized the stock prices of these companies and thereby contributed to weakening the political and economic case for Apartheid. This example put corporate directors on notice that the financial and brand consequences of unethical or amoral business practices can be very high. Positive screening on the other hand involves the proactive inclusion of sectors or company products and practices that fulfill the investor's values and ethical standards while remaining consistent with their investment objectives.

Shareholder Activism

Shareholder activism takes the SRI investor into an advocate role. With $3.07 trillion of muscle, SRI coalitions are able to spotlight issues and sponsor shareholder resolutions for reform. An example was a resolution sponsored in 1997 by Progressive Asset Management, a nationwide network of SRI investment consultants, to inspire the Disney Corporation to change its practice of using sweat shop labor. Coalition building around this issue resulted in 11% of the proxy vote going in favor of the resolution and the company adopting a code of conduct for contract suppliers. The growing use of shareholder activism holds tremendous potential in supporting public corporations in the creation of more life-supporting and sustainable business practices.

Community Investing

Community investing builds on the principle that change begins with me in my own back yard. Over the last several decades, SRI funding into entities such as Community Development Financial Institutions (CDFIs) as well as the work of community development networks such as the Business Alliance for Local Living Economies (3) (BALLE) has contributed to the large growth of community investment channels within the SRI industry. This rewiring of the investment landscape represents a constructive rebalancing in the flow of investment capital from Wall Street to Main Street. The April 2012 passage, and forthcoming implementation, of the Equity Crowd funding bill, as part of the 2012 JOBS Act, is the most recent example of the positive evolution in this community investment trend. Given that the majority of Americans work for non-public business within their communities an increase of community investment is likely to lead to greater community vitality and economic resiliency (4).

SRI and the Big Picture

The real work begins when you move from the idea of SRI into action. Is avoidance social screening enough, or are shareholder activism and community investing attractive options to you? Building a well-rounded investment portfolio involves balancing the tradeoffs between performance, risk and ideals. Ultimately this is a very personal equation crafted of careful thought and selection.

In the quest to build a more environmentally sound and socially just world, "the more beautiful world our hearts tell us is possible" (5), it is critical that we as investors make the connection that our investment dollars have creative impact and are a vote for the kind of world you want to live in. Choose wisely.

Footnotes

(1). US SIF - http://ussif.org/resources/sriguide/srifacts.cfm
(2). UN Principles of Responsible Investing - http://www.unpri.org/principles/
(3). Business Alliance for Local Living Economies - http://www.livingeconomies.org/
(4). Shulman, M. (2012). Local dollars, local sense: How to shift your money from Wall Street to Main Street and achieve real prosperity. White River Junction, Vermont: Chelsea Green Publishing Company.  (Book available at Amazon)
(5). Eisenstein, C. (2011). Sacred economics: Money, gift, and society in the age of transition. Berkely, California: Evolver Editions.  (Book available at Amazon)