More Than Profits: Selected Resources in Socially Responsible Investing

When you sign up for the pension plan stock funds at my workplace, and others like it, you get a bit of investment counseling, which goes something like this: If you want to make more money from your investment, you have to be comfortable in taking higher risks. You might concentrate heavily on high-tech, or biotech, or emerging stock markets. These gambles sometimes make a great deal of money, although there is also the risk of losing a great deal of your initial investment if the firms or countries go sour. If you are uncomfortable with high risks, you end up investing in a wide array of long-standing domestic "blue chip" stocks. You are reasonably assured in this case of two things: moderate growth in funds and moderate risk in which you didn't make as much money as you could have. Over the last two decades or so, we have seen more people concerned with not only how much money their investments were making but also with how their pension plans made the money for their retirement. Was it made through liquor, guns, tobacco, environmental pollution, strike breaking? Such prospective pensioners have trouble sleeping, knowing that while their personal money for the future might be safe, their souls in the future might be imperiled because they individually profited from what some would call misguided or detrimental company policies and products. Out of these concerns arose mutual funds committed to socially responsible investing. This guest column by Joseph LaRose describes this movement and its critics, offering a guide for both our customers and ourselves. Socially responsible investing (SRI) has its roots in the early years of this century, starting with religious investors avoiding investments in alcohol, tobacco, and gambling. It prospered through the Vietnam War years, where it was identified primarily with anti-war activists who withheld investing in companies that sold weapons, and in the late 1970s and 1980s, when there was purposeful divestment of securities issued by firms doing business in South Africa. By the 1990s, SRI had become a widespread and rapidly growing movement, identified less with single issues than with a range of social and environmental concerns. A study released on November 5, 1997, by the Social Investment Forum concluded that the volume of assets under management in socially and environmentally responsible portfolios in the United States had climbed to $1.185 trillion. It was also reported that the number of socially responsible mutual funds had grown from 55 in 1995 to 144 (see http ://www.socialinvest.org/Inv SRItrends.htm). Most socially responsible funds operate by limiting the universe of stocks that a fund manager considers. This is done using a system of screens that exclude the stocks of companies with records inconsistent with the values of the fund and include companies whose practices are either benign or show positive contributions to those values. Critics of SRI argue that limiting stock choice by criteria other than financial compromises the performance of the fund; proponents cite studies that show that SR funds either outperform or perform competitively with the universe of unscreened stocks. The debate continues. Social investors may be individuals or institutions (e.g., pension funds, mutual fund families, religious institutions, community development funds, and foundations). Their investments include not only socially screened corporate securities but also direct involvement in local communities through economically targeted investments (ETIs), small business loans, home loans to increase affordable housing, and venture capital. The recent SRI literature reflects the growing popularity of the movement, its connection with broader endeavors to make the world a better place, and the continued financial debate. It shows that social investors are often interested in such related areas of societal change as sustainable economies, responsible consumerism, and economic redistribution. …