CHAPTER 8
Socially Responsible Investing: A New Trend Where Ethics DO Matter WE
MUST MAKE THE WORLD HONEST BEFORE WE CAN
HONESTLY SAY TO OUR CHILDREN THAT HONESTY IS THE BEST POLICY.
– GEORGE BERNARD SHAW
F O R M A N Y I N D I V I D U A L I N V E S T O R S W O R L D W I D E , it is no longer enough to know if a company
makes money, but rather how it makes money. Socially Responsible Investing (SRI), virtually unheard of 30 years ago, has grown into an important component of global capital markets. According to the nonprofit Social Investment Forum, over US$2 trillion, or one dollar out of every eight dollars managed professionally, is invested according to some social criteria. SocialFunds.com reports that there are now almost 200 mutual funds utilizing social screens to select investments.
Shareholder Activism as an Important Economic Tool Proponents of SRI use social or moral criteria when researching and selecting investments. SRI considers both the investor’s financial needs and an investment’s impact on whatever the investor uses as the ethical base. SRI incorporates three main strategies that work together to promote socially, ethically and environmentally responsible business practices, which, in turn, contribute to improvements in the quality of life throughout society. The three strategies are: screening companies for morally or ethically objectionable practices; engaging in shareholder activism to persuade companies to change certain behaviors; and community investing, which involves direct investment in disadvantaged communities. Screening is the practice of including or excluding publicly traded companies from investment portfolios or mutual funds based on social, ethical and environmental criteria. Generally, social investors seek to own profitable companies that make “positive” contributions to society. Buy lists include enterprises with outstanding employer-employee relations, excellent environmental practices, products that are safe and useful and respect for human rights around the world. Conversely, they avoid investing in companies whose products and business practices are construed as harmful. W A R N I N G : Terms like “positive,” “excellent” and “outstanding” listed above are relative to each culture or economy while the term “human rights” is considered by many Asian and African societies to be an invention of the West. For most of the world’s poor, responsible investing is a rich person’s game they may never get to play.
Community investment provides capital to people who have difficulty attaining it through conventional channels or are underserved by conventional lending
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