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Socially Responsible Investing (SRI)

Socially Responsible Investing (SRI)

October 13, 2007 —

In recent years, many people have become interested in Socially Responsible Investing, or SRI (also known as ethical investing). a growing field in which money managers buy and sell stocks based on a company's environmental and social record, labor relations and other issues. Over the past decade or so, the growth of ‘ethical funds’ has been substantial, from approximately 10 funds in the early to mid-1990s to over 50 different funds by 2005. Although the $36 billion invested in these mutual funds in 2005 was still less than 1 percent of the $5.6 trillion market, it was more than triple the level of such investment in 2000.

Invest in Human Dignity

Investing in stocks or mutual funds is an important part of many Americans’ plans for retirement or additional spending income. More investors have begun to examine an additional set of criteria: what the corporation’s business is and  how it conducts that business in relation to larger local, national and global concerns. One of the more profound expressions of the ethical and social conscious emerging in our society is that of investments in corporate stocks that reflect environmental and socially responsible commerce or services. If the thought of your investments going into tobacco companies or paper companies that log old-growth forests really alarms you, then socially responsible investing is the most appropriate and viable alternative. Amy Domini, founder and CEO of Domini Social Investment observes, "People want to believe that some of what they invest is working toward a world of universal human dignity and environmental sustainability."

Essentially, in SRI, your money is being handled two ways. First, it is being steered away from corporations that are in some fashion harming the environment (directly or indirectly through policies) or engaging in business, labor or trade practices detrimental to the human standards of living and dignity expected in today’s world society.  Second, your investment is being directed into companies exhibiting good environmental policies and fair labor/social policies, or the religious/spiritual criteria that may be in place.

Short-Term, Long-Term, and Big Picture

While SRI’s are great for ease of mind and an ethical expression of wealth generation, they still need to perform at a growing return rate for the fund owners.  Some studies and reports conclude that since 2000, the SRI funds have lost 1.8 percent. SRI spokespeople point out that the corporate due diligence for their filtered funds is much more extensive and expensive than conventional funds. SRI managers of very successful funds also say they need to be compared to funds with similar investment styles. On the other hand, Chicago-based fund tracker Morningstar says that SRI’s assets have increased eight-fold, nearly three times that of traditional funds. Studies have also shown that 75 percent of investors do perceive that the more ethical a corporation is in its policies and practices—including environmental, fiscal and social—the better it is as a long term investment.

Undoubtedly, the SRI’s present a very ethical and responsible alternative to conventional investment funds. Yet, it is necessary to study the fund you want to invest with and ask the hard questions of the fund’s people and track record. There are more than 50 funds to choose from, and you need to look at both the short term and long term potentials.

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