[Editorial] Socially Responsible Investing

What is socially responsible investing?

  • Socially Responsible Investing (SRI) or social investing refers to the practice of investing money in funds and companies for positive social impacts i.e. socially conscious investing.
  • SRI has 2 inherent goals:
    1. Social impact
    2. Financial gains
  • Such investments are made into companies with solid social values such as those engaged in environmental sustainability, social justice and clean energy technologies.
  • It also includes investments into mutual funds and exchange-traded fund that are socially conscious.

Why is SRI significant?

  • SRI has succeeded in making moral choices significant in investment-related decision making.
  • When it comes to investment, mixing ethics and morality with profit-making decisions is considered as a compromise of the money manager’s fiduciary duty. SRI challenges this assumption by redefining fiduciary duty to expand its scope.
  • It showed that ignoring social and environmental impact factors also counts as bad risk management.
  • SRI through MFs and ETFs have an added advantage of providing the investors with exposure to multiple companies across several sectors via a single investment.

How is it being done?

  • In 1969, one of the 1st social shareholder resolutions was filed at the Dow Chemical Company. In this case, the investors opposed the production of napalm by the company. Napalm is an incendiary substance that was used by the USA during the Vietnam War.
  • Amy Domini, the founder of SRI in the USA, has been instrumental in ensuring that 1/3rd of investments in the country are now guided by environmental and social standards.
    • Her funds are focused on improving working conditions in various countries, by working with NGOs and investor coalitions, to ensure that the basic standards of working hours, workplace safety and pay are maintained.
    • According to Domini, “When Wall Street asks for better behavior, retailers are willing to deliver it”.
  • Recently, investors have been instrumental in mobilizing companies to oppose the genocide in Darfur, Sudan.
  • They have also been urging companies to expose corporate links to the Myanmar military regime.
  • Another example of SRI is community investing where the funds are directed to organizations with a track record of social responsibility towards the community.

What is the way ahead?

  • When Domini started out as a stockbroker in the 1970s, the idea of social criteria playing a significant role in investment decisions was considered irrational.
  • Yet, according to the Forum for Sustainable and Responsible Investment in the USA, some 33% of the total $51.4 trillion under professional money managers is invested based on some responsible investment criteria.
  • Domini, in her book ‘Thoughts on People, Planet & Profit’, shows how institutional structures can be established to defy the trend of putting profits before people.
  • Whether or not SRI has made a big enough difference remains to be seen but climate change and other pressing social issues have generated a strong enough force that could motivate more investors towards SRI.

Conclusion:

Whether SRI is simply being used as window-dressing while profit-driven socially irresponsible investing continue to dominate the scene is still to be seen. However, SRI could be the start of a powerful movement to reform capitalism in its current avatar.

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