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Learning Center
Green Investing Basics
So exactly what is Socially Responsible Investing?
Socially Responsible Investing (SRI) is an investment strategy that integrates social or environmental criteria into financial analysis.
Though first practiced by religious investors who avoided companies involved in tobacco, alcohol, and gambling, SRI has evolved beyond avoidance screening to include the following four aspects:
1. Social Research - Examines the social and environmental records of companies to determine which companies to include or exclude in an investment portfolio. Increasingly, social research is seen as a way to identify companies with better management and lower litagation risk.
2. Shareholder Advocacy - Shareholder advocacy can take many forms, from something as simple as a phone call or letter-writing to filing a formal shareholder resolution calling for a company to take a particular action. Advocacy also includes proxy voting, or simply casting your vote as a company shareholder.
3. Social Venture Capital - Seeks out early-stage investments in companies that have identified profitable ways to meet social needs (such as alternative energy companies), before they are publicly traded. This early-stage investing can help these companies secure necessary funding to grow and often leads to healthy returns for shareholders.
4. Community Investing - Channels affordable credit to communities underserved by traditional credit markets to create jobs, build homes, and finance community facilities.
What Social Screenings are used?
A number of criteria may be used, including but not limited to:
- Governance and Ethics
- Environment
- Human Rights and International Operations
- Indigenous People's Rights
- Product Safely and Impact
- Community Relations
- Sudan-Related Profits
Sometimes it's a matter of excluding companies because of their involvement in certain industries and sometimes it's looking for degrees of good or bad behavior on other issues like environment or workplace issues. For example:
- Alcohol
- Tobacco
- Weapons
- Nuclear Energy
- Gambling
The Power Of Socially Responsible Investing
Investing in companies that are socially responsible to the environment, to their employees and to their communities makes good business sense. Socially responsible investors have also taken steps through shareholder advocacy tools like proxies and filing corporate resolutions to help corporations change their practices to reflect more enlightened social goals. Though it is difficult for one shareholder to influence corporate policy, socially responsible investors and mutual funds can band together to file joint resolutions to speak with even more authority.
Through the power of socially responsible investors, corporations have changed the countries they operate in, their hiring practices, their energy use, their lighting in factories and offices and decreased their carbon footprints on an unprecedented scale.
There are over 200 mutual funds focusing on socially responsible companies for investors to choose from. More choice means more opportunities for diversification. As socially responsible investing has increased so has public interest in alternative energy, natural foods, green building practices and alternative medicine creating even more investing opportunities. Screening restrictions can produce either better or worse results than the market as a whole. Diversification is a method for managing risk, and does not guarantee against a loss.
With content from www.investgreen.org
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