Socially 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.
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.
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!
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:
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.