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SRI – Socially Responsible Investing

SRI Socially Responsible InvestingSocially responsible investing, or “SRI”, is an investment strategy where the investor chooses where they invest based on their beliefs or in support of a cause. SRI is not a new concept; it’s been around for a while. Originally it has been used to target “sin” companies, Tobacco, Alcohol and Firearms being the primary targets of SRI. One interesting aspect of SRI
is that it has been re-labeled. It’s no longer considered “Socially Responsible Investing” it’s now referred to as “Sustainable and Responsible Investing”. I guess throwing in some guilt and a little buzz help make it more palatable.

There’s a never ending list of evolving issues in our society. As a result, SRI has evolved in the types of causes and reasons that people support. Here is a short list of some of the causes that may motivate SRI investors.

FOR

Social Issues – Is the company socially responsible? Are they importing goods made by 8 year old children working in a sweatshop earning 20 grains of rice an hour? How about closer to home? Is a company known for fairness and loyalty (Bwahahahaha; ahem, please excuse my hilarity) to their employees? These are  factors that guide an individual to make an SRI investment.

Economics -The terms “Outsourcing” or “Offshoring” should be familiar to everyone. If not, then you’ve probably been holed up in a cave somewhere. Come on out and see what’s going on with our jobs. Sending jobs overseas may make financial sense to a company. But there are repercussions.  People are tired of customer service reps they can barely understand. More importantly, the “evacuation” (or should that be evisceration?) of jobs from the North American Continent are a major source of concern.

Ecological or Green – There’s a very large movement towards “green” or ecologically friendly activity in today’s society. There are companies that specialize in supporting green initiatives and technologies. There are also companies that produce Eco-friendly products. Many companies are labeling themselves as green because of how they operate or produce goods. Alternative energy companies are popular investment in this category.

AGAINST

Animal Cruelty – Companies that use animals in ways that can be considered cruel may be the target of SRI. Companies that might fall into this category are Cosmetic Companies, Pharmaceuticals and Producers or processors of animal based produce.

Defense Industries – Defense industries are in a weird category. You either love them or hate them and you’ll probably invest accordingly based on your feelings.

SO YOU WANT TO SUPPORT A CAUSE

If you feel strongly enough about SRI then you should follow your principles and invest to support them. Make sure you understand what you are getting into. There are a few steps you want to take if SRI is something you want to follow in your investment practices.

Know your SRI Cause

If you’re considering an SRI style of investing,  you probably already know the cause you want to support. Understand HOW companies either support or go against the cause you believe in. What may appear like a company hurting your cause may not really be that once you peel a few layers back, the same applies in reverse! Take a manufacture of advanced battery technology. At first glance they may look like a good choice if you support the eco cause. But if you find out that they are responsible for significant amounts of contaminants being produced and disposed of irresponsibly, then they obviously are not a good choice for your portfolio.

Do your homework and understand what really makes up a sound responsible approach for a company to take. Also understand what makes up irresponsible behavior and make your choices accordingly

Study the Fundamentals!

Don’t let up on your financial analysis when looking at SRI investments. Your first responsibility when investing is to your fiscal health, not to a rare two inch fish in the southern pacific! I’m sure there were investors in Solyndra that felt really good about their investment. At least until Solyndra ceased operations in September of 2011.

Certainly those investors were shocked that not only was their investment no longer contributing to society, but they had lost most of their money too. There isn’t any specific financial analyses you have to undertake to evaluate an SRI prospect. Use the same analyses model that you would for any other investment. Don’t get emotionally swayed by the cause you are trying to support. Unless of course you were an investor in Solyndra. Then you can feel perfectly fine about wanting to lynch the executive management there. Just don’t  carried away and actually do it!

SRI Funds

If you don’t have the time or the inclination to do your homework, consider the option of investing in SRI funds. Google the term and you’ll find page after page of funds founded on SRI principles.

Here are a few examples of some Funds and Fund Families that are SRI oriented. The Ave Maria Funds   are aimed at the Catholic investor and adhere to catholic principles.  The Domini Funds, also carries a family of SRI funds.

The Parnassus Workplace Fund (PARWX) is an SRI fund with an interesting twist. They focus their investments on companies that treat their employees well. The founder of this company took note that many of the companies that made Fortune’s top 100 companies to work for list also performed better than the market as a whole. I like the concept and think I need to research this particular fund and see how they perform.

Of course if you’re a contrarian you may want to look into funds that specialize in investing in anti-social and ethical companies. The Vice Fund (VICEX) focuses its investing strategy on Tobacco, Alcohol, gambling and the defense industries.

Just for grins, I thought I would compare the performance  of the AVE Maria Catholic Value Funds (AVEMX) against the Vice Fund over the last ten years. The following are Load adjusted returns:

VICEX
1 Year 22.72%
3 Year 19.19%
5 Year 2.8%
10 Year 11.54%
AVEMX
1 Year 12.9%
3 Year 13.81%
5 Year 5.19%
10 Year 9.42%

After looking over the results, it appears that overall the devils beat the angels here, Just saying!

Deciding whether you want to be an SRI investor is a personal decision and entirely your choice. Invest responsibly, but never forget that your financial health should be your highest priority.

 Do you invest in SRI Funds or Companies?
Share your experience or opinion in this type of investing.

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John Schmoll is a Dad, husband and veteran of the financial services industry. He's passionate about helping people learn from his mistakes so that they can live lives free from the shackles of debt and empowered to make their money work for them. You can check out his other sites: Frugal Rules, for ways to improve your financial literacy; and Sprout Wealth for tips on different ways to make more money. John has been featured on Forbes, Lifehacker, Yahoo Finance and US News & World Report and more. If you're wanting to grow your blog, check out my blog coaching services to see how I can help you take your site to the next level.

31 comments

  1. Sadly, I’ve never invested in SRI funds for one reason: the results aren’t there. While Domini has sometimes provided some great returns, I had to laugh at the VICE comparison. You’re right…the devil for the win on investment returns!
    AverageJoe recently posted…Makin’ Mo’ Money – Two Guys and Your Money Episode 31My Profile

  2. I roll with joe. The returns are not there for SRI funds. Lets face it society as a whole prefers vices over social responsibility or cities like vegas wouldn’t exist. Unfortunately being in the business to have returns I typically do not look much further than the fundamental financial analysis when it comes to investing.

    • I agree, the VICE fund holds a mild interest for me but not that great. I’m all about performance and if the economy gets strong (IF), the vice fund will probably do poorly!

  3. I think I’ve subconsciously stayed away from the stock of companies I disagree with. I’m not a big trader anymore but when I was my research normally worked out. I did find the last part on SRI Funds interesting. I’d like to find one on Christian nonprofits.
    John @ Fearless Men recently posted…10 Ways to Cut Your Gym Membership CostMy Profile

    • The Ave Maria funds are the closest, even though they are affiliated with the Catholic Church. I’m not sure if there would be funds for non-profits though?

  4. I would have to agree with Joe on this one. While I think the idea is great, the numbers usually are not there. I am going to look at their fundamentals and make sure they’re in line with my strategy.
    John S @ Frugal Rules recently posted…Happy Six Months to Frugal Rules!My Profile

    • I’m right there with all of you. Although I have causes I believe in, my first responsibility is to my family and myself when it comes to financial health. If I really beleive in a cause I may donate to it but will only invest if the numbers add up.

  5. Justin, I’m right there with you friend. The numbers have to stack up for me to invest in a company.

  6. I agree with a lot of the commenters above. If the numbers don’t get solid return a good return on investment then I think it wouldn’t be worth it.
    Kevin Watts @Graduatingfromdebt recently posted…Why Online College Might be a Better Option for YouMy Profile

    • I’m with you and everybody that’s commented that opinion! Invest for growth, safety or income; whatever you invest in should have a financial objective!

  7. Great post Jose, Never heard of the Ava Maria Funds, being Catholic this really seems enticing, I will have to check it out. Thanks for another great post!!
    Jim recently posted…Insider Stock Buys | Best Indication Of A Buying Opportunity?My Profile

  8. Great info, Jose – thanks! I agree with most above – especially with your statement about our first responsibility being to our families. That should be our most important cause.
    Laurie @thefrugalfarmer recently posted…Motivation: Words of Wisdom From Paul MilliganMy Profile

    • It is. I can understand supporting a cause or a movement. I really can’t wrap my head around making an investment decision based on a belief rather than solid financial analysis.

  9. What a fabulous idea for a post. I’ve actually never seen this one done. When I first signed up for my IRA, I invested in a Vanguard social index fund, but the returns were not very good. I’m all about values, but I’d prefer to make lots of money, even from vice companies, and then donate as much as I can to causes I believe in. If I lose all my money in bad investments, I have nothing to give. Kind of a Robin Hood approach maybe? It also reminds me of accepting sponsorships on a blog. I’d take the money, and use it to provide advice that lets people make better money decisions.
    Kim@Eyesonthedollar recently posted…A Week in the Life of An OptometristMy Profile

    • Thanks Kim! I’m glad I hit on a topic that hasn’t been done yet, at least not recently. I’m like you (and the majority of other commenters). I’d rather make money first and then I can donate money to the right causes!

  10. Like the others, I don’t invest my money in something I believe in if I’m going to lose money. On the other hand, I would never invest in a sector that goes against my beliefs.
    You’ll never catch me investing in a cigarette company. I don’t care if the stock is so cheap that I know I’d make 10X my investment.
    Justin@TheFrugalPath recently posted…Start Living on the Cheap: A Frugal PrimerMy Profile

    • That’s SRI, it doesn’t have to be called SRI or anything else. Avoiding an investment because you don’t believe in what the company produces is perfectly fine and I respect your decision.

  11. I had this issue recently when purchasing Lorillard. Should I support smoking when it goes against my beliefs or should I ignore it since it is everyone’s individual responsibility whether they start smoking or not? I still haven’t solved this.
    Martin recently posted…New Trade – Kinder Morgan Energy Partners LP (KMP)My Profile

  12. Thanks for such an informative post. It’s so easy to buy without acknowledging the sources and methods of manufacture. Thanks for the reminder.

    • Thanks and your welcome! I imagine that there are some companies that i would feel icky investing in, luckily I haven’t run into any that I would want in my portfolio yet.

  13. What I found out very quickly in SRI is, one persons’ socially responsible, is another persons’ morally apprehensive. If you dig into some of the SRI funds, it’s likely you will find a holding that conflicts with a religious, moral, ethical, political, environmental, humane, etc. belief you hold dear. What’s worse is, that many companies one could describe as socially responsible, will do things one finds to be the opposite. That said, efforts are likely more receptive than ignorance.
    Scott @ Youthfulinvestor recently posted…Sample Long Term DRIP Portfolio for Twenty-SomethingsMy Profile

    • Scott, that’s why in my mind, I stick to investing in what i feel are solid long term companies with potential gains or good dividends. I can contribute to a cause financially if I do well with my investments!

  14. Great post!

    It is a tricky subject. Everyone has a different moral code. I feel some companies should always be avoided, i.e Phillip Morris, but what about McDonald’s? Is an unhealthy restaurant an immoral investment?

    The other tricky part is you start to bring emotions into what should be an objective game. For example, I absolutely love Whole Foods ($WFM) but cannot make the valuation work right now. I really want to be able to say I own Whole Foods stock, but thankfully I’m remaining objective (for now).

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