Investment Practice: Socially Responsible Investing
Socially responsible investing (SRI) has received significant attention during the past several years, driven by a growing desire among investors to have their portfolios reflect their personal values.
Over the last nine years ended 2003, assets managed in socially responsible strategies grew 40% faster than all other professionally managed assets. To that same point, roughly one out of every nine dollars under professional management in the U.S. is invested in a socially responsible manner.
This surge of socially responsible inflows has not been unique to the U.S., with the number of SRI funds in Europe having grown nearly eighty-fold within the last two decades.
Despite the increased hype around SRI of late, many still may be unclear on the premise around SRI, benefits of such investing, and/or perceived disadvantages of the same.
Put simply, SRI is the process of investing that is based upon personal values and societal concerns surrounding social, environmental, and corporate morals. The allure of SRI stems from the opportunity it provides investors to incorporate personal values in investment decisions, while indirectly promoting corporate responsibility among companies and heightening competition for excess returns within the marketplace.
There are three leading strategies used within the SRI framework- Screening, Shareholder Advocacy, and Community Investing -all of which are dynamically employed, often simultaneously, as investment tools for diversifying portfolio compositions.
Screening is the most common method to practice SRI through which individual securities are evaluated on their financial stability and their positive contributions to society and/or the environment. The use of a 'negative' or 'exclusionary' screening process targets the omission of those companies not aligned with designated societal values. Companies in the tobacco, firearm, and incineration industries are typical issues excluded from many SRI portfolios. Conversely, those companies that display, strong environmental-friendly practices, respect for human rights, and/or produce 'safe' products above and beyond their peers are often incorporated into SRI portfolios via a 'positive' screening strategy.
Shareholder Advocacy is typically led by institutional investors such as trusts, foundations, pension funds, and investment pools with the intention of influencing Corporate America to improve its level of corporate citizenship and responsibilities to stakeholders. These advocacy practices can range from simple dialogues with targeted companies or industries to filing and voting on specific proxy resolutions.
Community Investing involves placing capital in local, entrepreneurial businesses or investments as a means to help provide them with access to credit, equity, and additional resources. In many cases, the capital provided to certain institutions, community loans funds, or regional development bonds fosters sponsorship for low-income individuals, community childcare facilities, affordable housing, and healthcare.
Article provided by SEI Investments Development, inc. |
