Socially Responsible Investing

Socially responsible investing is a catch phrase used to describe several types of investment strategies - Ethical Investing, Green Investing and even Faith-Based Investing.  For the most part, this type of investment strategy is limited to individual stocks or mutual funds.

What is Socially Responsible Investing?

Whatever name it goes by, the idea of Socially Responsible Investing, or SRI, can be defined as a way to provide investors with a method of investing that uses a filter to look closely at a company's social or environmental characteristics instead of basing investment decisions purely on financial performance.  It is taking your beliefs and values and applying them to the stocks you purchase.

Social Investment Strategy

Social investing describes a style of investing that combines the desire to maximize your financial return as long as social good exists.  Social investors will often favor environmentally responsible corporate practices, workforce diversity, and product safety and quality.

The classic example of Socially Responsible Investing is usually applied to companies that make alcohol, cigarettes, or own casinos.  To some folks these companies sell "vices" and the world would be a better place without such companies - at least that is the thought.  In practice, however, this form of investing is really not so straight forward.

Socially Responsible Decisions

Let's take a look at a company like Walt Disney.  To most, this company seems squeaky clean, but Walt Disney is also pretty open about their policies such as diversity.  So how can embracing diversity work against Disney? Well, they have a very supportive policy on homosexuality.  To some of us that is a good thing, but a hard-line Catholic might not think that is such a good policy.  Diverging beliefs would allow one person to invest in Disney, while another would screen it out.

So it would seem that Socially Responsible Investing is an individual decision.  The good thing is that most people would agree on a company's environmental record. Are they a chronic polluter that is in the newspaper all the time?  Have they attempted to mitigate pollution efforts in any way or do they fight for the right to pollute?

After the Valdez oil spill, Exxon got a real black-eye from all environmentalists.  Regardless of the effort put forth to clean the shorelines and save animals, it was simply not enough.  Not only did this company face a multi-billion dollar lawsuit, but for years it was deemed socially irresponsible to fill up your car at one of their service stations.

The History of Socially Responsible Investing

If you're thinking about trying out this investment strategy, you're not alone and you're certainly not the first person to dive in.  In biblical times, Jewish law prescribed ways to invest ethically.   In the mid 1980's Fortune Magazine called it "feel good" investing.  Today, it's probably best described as "politically correct" investing.

Some believe that social investing can even trace its roots back to the Religious Society of Friends, better known as the Quakers.  As far back as 1758, the Quakers prohibited members from participating in the business of buying or selling humans.  Today we often see religious institutions at the forefront of social investing.

Market Demand for SRI

We also see quite a bit of demand for SRI in terms of market demand.  Estimates from the Social Investment Forum indicate that there are about $2.3 trillion in assets attributed to socially responsible investments.  This includes over 200 mutual funds and accounts held by individual investors and communities.

It also appears that SRI is slowly becoming a force to be reckoned with in the financial community:

• Both socially and environmentally responsible mutual funds continue to rise, with a four-fold increase in the last ten years with respect to the number of funds and the funds' assets.
• Socially responsible investing appears to be spreading throughout the world with Canada, Europe, Australia, and Japan leading the way.

Today nearly every major brokerage house offers a choice of Socially Responsible Investment funds.  In fact, some companies even specialize in this kind of offering.  But thinking back on the Walt Disney example given earlier - this form of investing is very individual.  So read the prospectus carefully and make sure the fund's philosophy matches yours.

Socially Responsible Mutual Funds

If you're interested in investing in a socially responsible mutual fund, then we've got some good news for you.  We've assembled a list of the top 10 performing SRI mutual funds as of September 2007.

These top rated funds were selected based on their ten year average annual return.  The table below provides the mutual fund name, symbol and the three, five, and ten year average returns.

Top SRI Mutual Funds

About the Author - Socially Responsible Investing

Bill Sharlow is the Editor of Money-Zine.com.  Copyright © 2004 - 2007 Money-Zine.com

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