Social investing is “ limiting one’s investment alternatives to securities of firms whose products and actions are considered socially acceptable. ” (Social investing, 2009) Social investing goes by many names and is sometimes referred to as green investing, ethical investing, (Social investing, 2009) sustainable investing, mission investing, and double/triple bottom line investing. (Social Investment Forum, 2007) Social investing is a strategy that places corporate social responsibility along with social, governmental-political, and environmental concerns at the forefront of investment goals.The purpose of social investing is to improve a multitude of social, political, economic, and environmental conditions while maximizing investment returns.
What investments meet the criteria of social investors? Investors look for companies, portfolios, or funds that invest in companies that focus on corporate social responsibility. Social investors do not only apply traditional forms of financial and management analysis, but also look for companies who have strong human rights policies, who focus on product safety, who have an exceptional employee relations and employee benefits record, and who use sound environmental practices.For example, social investors would avoid companies who choose to operate “sweatshop” factories paying low wages, and offering no health benefits to workers in economically depressed nations, and would instead select companies that have a record for investing in employee education, and have programs such as on-sight daycare and health clinic facilities. Social investors may also avoid cigarette manufacturers, gambling casinos, nuclear power producers, and defense constractors as a matter of ideology. Social investing, 2009) (Gaouette, 1996)Social investors would avoid companies that have a poor environmental record such as dumping toxic materials in land fills near schools and public parks, and would instead select companies that have a policy of using office supplies made from recycled materials. Social investors use shareholder advocacy as a tool to manage their existing investments.
Shareholder advocacy involves dialoguing with corporations and filing shareholder resolutions in areas of labor relations, corporate governance and responsibility, discrimination issues, and other areas of concern that the investor has identified as criteria for their investments. (Social Investment Forum, 2007)Nearly a third of corporate resolutions deal with social and environmental issues because investors realize that all investment has some socio-political and environmental impact, and political, envitonmental, and social policies impact the bottom line of all investments. Gaouette, 1996) This strategy not only protects the individual interests of social investors, but helps bring greater public awareness, and encourages people, companies, and governments to take actions on a variety of issues. Is social investing profitable? Investing in socially responsible stocks and funds can offer investors significant returns that perform as well as or, in many cases, may outperform the general investment market. One reason that social investing is so profitable is lower risk.Companies that practice corporate social responsibility reduce the financial risks, including fines and litigation costs, associated with poor management and business practices.
Socially responsible companies tend to be more innovative, have better community relations, and greater access to capital and financing. (SRIStocks. com, 2008) Companies with strong social responsibility programs offer investors higher returns on assets and equity than those with weaker programs. For example, companies with strong human rights positions and may have a higher rate of employee satisfaction and productivity.
Shares of socially responsible companies have greater “tangible, built in value. ” (SRIStocks. com, 2008) Goodwill is a significant asset on many corporate balance sheet that adds to shareholder value. Additionally, social responsibility can enhance a company’s market positioning and competitive value in the marketplace.
One major source of institutional social investing is mutual funds. Performance of social investment mutual funds has been tracked historically through the Domini 400 index. This index, which originated in the early 1990s and is comparable to the S&P 500, is the oldest index that tracks only socially responsible funds.Historically, the Domini 400 has yielded a 10.
83% total return compared to 10. 33% for the S&P 500. (Social Investment Forum, 2007) Social investing has grown over the last decade and currently accounts for more than 11% of the total value of the United States investment market. (Social Investment Forum, 2007) Individuals and institutions both engage in social investing.
The number of socially responsible mutual funds has grown more than 30% from 55 in 1995 to 260 in 2007. (Social Investment Forum, 2007)Social investing: true stories In the early 1990s, Renee O’Brien had the task of investing a large inheritance. Following her conscious and her religious and moral training, she decided not to invest in companies that manufacturer and distribute weapons, exploit workers in third world nations and that have a reputation for gender and race discrimination. After reading about socially responsible investing, she place her inheritance in Citizens Fund (Shim, 2001) which consistently earned 30%-35% returns.
Bruce Martin found that social investing is more art than science.He found that even when a socially responsible investment met his core criteria, the fund he choose invested in Nike, which he personally felt did not meet his criteria of corporate social responsibility. (Trumbull, 1997) His story shows that even when socially responsible mutual funds seek to achieve both a balanced and responsible investment portfolio, not all investors goals and values can be adequately reflected. Conclusion Social investing has a long history and a long history of profitability and success for investors.Social investors have found the best of both worlds, better than average returns and the opportunity to advance social, political, and environmental issues in the corporate arena. Socially responsible investing has become an industry within an industry with it’s own indices and investment companies whose assets under management are invested solely in responsible companies.
Additionally, companies and funds that offer social investing opportunities contribute to the larger market helping boost returns in the overall investment markets.
