The popularity of SRI has grown in recent years, but its roots date back to the Quakers. Here's a quick fact sheet to give you an idea of what this investment approach is all about.
1. SRI Wasn't Born Yesterday
Many people believe SRI dates back to the 1800s when the Quakers refused to do business with companies that profited from slave labor or war. Methodists may well have brought their views of money management and ethics from Europe two hundred years ago and introduced their early versions of social screens.
2. Protesting the Vietnam War Through Socially Responsible Investing
In the modern era, opposition to companies that profited during the Vietnam War generated new interest in SRI. Weapons producers became the focus of social activists as did chemical companies. Many SRI historians say a 1972 picture of a young naked Vietnamese girl running towards the photographer with her back burning from a chemical called Napalm, channeled outrage towards Dow Chemical, a chemical manufacturer.
3. Socially Responsible Investing and South Africa
Criticism by socially responsible investors of companies investing in South Africa during the 1970s and 1980s helped put an end to repressive governmental apartheid policies. The Sullivan Principles were developed by African-American Rev. Leon Sullivan as a code of conduct for companies operating in South Africa. They serve as an example of corporate social responsibility, something socially responsible investors value.
4. Bad Products, Bad Investments
Socially responsible investors avoid investing in certain companies because of the products they make or the services they provide.The most obvious example would be tobacco products, which have been proven to be addictive and cause cancer. Conversely, socially responsible investors value companies that market their products honestly and act swiftly when safety issues arise. Pharmaceutical giant Johnson & Johnson is often mentioned as an example of a company that acted responsibly, by recalling more than $100 million in Extra Strength Tylenol in 1982 when it was discovered someone had laced the capsules with cyanide.
5. Lawsuits Drain Corporate Funds
SRI investors urge companies to improve their practices on environmental issues, as well as corporate governance and social concerns. Corporations that must spend resources defending themselves against lawsuits that claim they pollute the environment, turn a blind eye to sexual harassment or discriminate against minorities, among other charges, are unable to commit those funds to growing the business. Competitors who don't face such lawsuits can reinvest in themselves.
6. Follow the Money
In 2007 more than $2.71 trillion in assets under management applied at least one of the main SRI approaches – screening, shareholder advocacy or community investing. During the past 20 years investors have steadily increased the amount of dollars they are committing to socially responsible investing.
7. Social Investing Is Favored by Large Investors
Many charitable organizations, religious groups and pension funds invest using SRI principals. Some of those groups may have relatively small sums to invest. But others have much more. Many colleges founded by religious orders, for example, have endowments of hundreds of millions of dollars that they want invested without violating their religious principles.
8. Socially Responsible Investors Like Money Too!
No doubt many socially responsible investors, when faced with a choice of investing in a company that meets its standards and one that does not, would take the former even if they'd earn less on their investment. But generally socially responsible investors share a desire with non-SRI investors to earn the best return on their money. That's why they invest it rather than keep it under their mattress. But they raise the bar determining where to invest by incorporating their personal principles as well.
9. Social Investing Offers Traditional Investment Vehicles and More
Socially responsible investors can put their money in stocks and bonds that meet their screens, mutual funds that adhere to SRI goals and in certificates of deposit at community development banks. High net worth investors with more capital to invest might choose a socially responsible investing venture capital fund. SRI VC funds invest in start-up companies that meet specific SRI screens.
10. Money Talks
Some SRI investors couple their financial decisions with shareholder activism – advocating for important issues with the managers of the companies in which they invest. By owning stock in a corporation they are entitled to voice their opinions on how the company operates. Many shareholder activists will purchase stock in a company knowing it does not meet their standards, then use their ownership as a lever to initiate change.