Socially responsible investing
Socially responsible investing (SRI), also known as sustainable, socially conscious, "green" or ethical investing, is any investment strategy which seeks to consider both financial return and social good.
In general, socially responsible investors encourage corporate practices that promote environmental stewardship, consumer protection, human rights, and diversity. Some avoid businesses involved in alcohol, tobacco, gambling, pornography, weapons, and/or the military. The areas of concern recognized by the SRI industry can be summarized as environment, social justice, and corporate governance—as in environmental social governance (ESG) issues. In addition to stock ownership either directly or through mutual funds, other key aspects of SRI include shareholder advocacy and community investing.
"Socially responsible investing" is one of several related concepts and approaches that influence and, in some cases govern, how asset managers invest portfolios. The term "socially responsible investing" sometimes narrowly refers to practices that seek to avoid harm by screening companies included in an investment portfolio. However, the term is also used more broadly to include more proactive practices such as impact investing, shareholder advocacy and community investing. According to investor Amy Domini, shareholder advocacy and community investing are pillars of socially responsible investing, while doing only negative screening is inadequate.
- 1 History
- 2 Modern applications
- 3 Investing strategies
- 4 Global context
- 5 Ethical investment in the UK
- 6 Ethical investment in higher education
- 7 See also
- 8 References
- 9 External links
The origins of socially responsible investing may date back to the Religious Society of Friends (Quakers). In 1758, the Quaker Philadelphia Yearly Meeting prohibited members from participating in the slave trade–buying or selling humans.
One of the most articulate early adopters of SRI was John Wesley (1703–1791), one of the founders of Methodism. Wesley's sermon "The Use of Money" outlined his basic tenets of social investing – i.e. not to harm your neighbor through your business practices and to avoid industries like tanning and chemical production, which can harm the health of workers. Some of the best-known applications of socially responsible investing were religiously motivated. Investors would avoid “sinful” companies, such as those associated with products such as guns, liquor, and tobacco.
The modern era of socially responsible investing evolved during the political climate of the 1960s. During this time, socially concerned investors increasingly sought to address equality for women, civil rights, and labor issues. Economic development projects started or managed by Dr. Martin Luther King, like the Montgomery Bus Boycott and the Operation Breadbasket Project in Chicago, established the beginning model for socially responsible investing efforts. King combined ongoing dialog with boycotts and direct action targeting specific corporations. Concerns about the Vietnam War were incorporated by some social investors. Many people living during the era remember a picture in June 1972 of a naked nine year-old girl, Phan Thị Kim Phúc, running towards a photographer screaming, her back burning from the napalm dropped on her village. That photograph channeled outrage against Dow Chemical, the manufacturer of napalm, and prompted protests across the country against Dow Chemical and other companies profiting from the Vietnam War.
During the 1950s and 1960s, trade unions deployed multi-employer pension fund monies for targeted investments. For example, the United Mine Workers fund invested in medical facilities, and the International Ladies' Garment Workers' Union (ILGWU) and International Brotherhood of Electrical Workers (IBEW) financed union-built housing projects. Labor unions also sought to leverage pension stocks for shareholder activism on proxy fights and shareholder resolutions. In 1978, SRI efforts by pension funds was spurred by The North will Rise Again: Pensions, Politics, and Power in the 1980s and the subsequent organizing efforts of authors Jeremy Rifkin and Randy Barber. By 1980, presidential candidates Jimmy Carter, Ronald Reagan and Jerry Brown advocated some type of social orientation for pension investments.
SRI had an important role in ending the apartheid government in South Africa. International opposition to apartheid strengthened after the 1960 Sharpeville massacre. In 1971, Reverend Leon Sullivan (at the time a board member for General Motors) drafted a code of conduct for practicing business in South Africa which became known as the Sullivan Principles. However, reports documenting the application of the Sullivan Principles said that US companies were not trying to lessen discrimination in South Africa. Due to these reports and mounting political pressure, cities, states, colleges, faith-based groups and pension funds throughout the US began divesting from companies operating in South Africa. In 1976, the United Nations imposed a mandatory arms embargo against South Africa. From the 1970s to the early 1990s, large institutions avoided investment in South Africa under apartheid. The subsequent negative flow of investment eventually forced a group of businesses, representing 75% of South African employers, to draft a charter calling for an end to apartheid. While the SRI efforts alone did not bring an end to apartheid, it did focus persuasive international pressure on the South African business community.
Trillium Asset Management was founded in 1982 by Joan Bavaria and is the oldest independent investment advisor devoted exclusively to sustainable and responsible investing (SRI) in the United States. Originally named Franklin Research & Development, the company was started to provide a space for investors to match their money with their values. In 1984, Bavaria also co-founded The Social Investment Forum, now known as the US SIF – The Forum for Sustainable and Responsible Investment, one of the first organizations serving social investors.
The mid and late 1990s saw the rise of SRI’s focus on a diverse range of other issues, including tobacco stocks, mutual fund proxy disclosure, and other diverse focuses.
Since the late 1990s, SRI has become increasingly defined as a means to promote environmentally sustainable development. Many investors consider effects of global climate change a significant business and investment risk. CERES was founded in 1989 by Joan Bavaria and Dennis Hayes, coordinator of the first Earth Day, as a network for investors, environmental organizations, and other public interest groups interested in working with companies to address environmental concerns.
Since 1989, representatives from the SRI industry have gathered at the annual SRI in the Rockies Conference to exchange ideas and gain momentum for new initiatives. This conference is produced by First Affirmative Financial Network, an investment advisory firm that specializes in sustainable and responsible investing. The conference has attracted over 550 persons annually since 2006.
The first sell-side brokerage in the world to offer SRI research was the Brazilian bank Unibanco. The service was launched in January 2001 by Unibanco SRI analyst Christopher Wells from the São Paulo headquarters of the bank. It was targeted at SRI funds in Europe and the US, although it was sent to non-SRI funds both in and out of Brazil. The research was about environmental and social issues (but not governance issues) regarding companies listed in Brazil. It was sent for free to Unibanco's clients. The service lasted until mid-2002.
Two good things came out this research:
- The idea was picked up by Mike Tyrrell, who worked at Jupiter, an SRI fund manager in London, and who developed it into something much bigger and better at HSBC and then Citigroup.
- ABN AMRO's operation in Brazil used this research to create the first SRI fund in an emerging market, launched in November 2001. As of late 2008, this fund, called Fundo Ethical, was the Brazilian operation's biggest and best performing stock fund of any kind. (ABN AMRO's operation in Brazil was bought by Santander in 2007.)
Drawing on the industry's experience using divestment as a tool against apartheid, the Sudan Divestment Task Force was established in 2006 in response to the genocide occurring in the Darfur region of the Sudan. Support from the US government followed with the Sudan Accountability and Divestment Act of 2007.
More recently, some social investors have sought to address the rights of indigenous peoples around the world who are affected by the business practices of various companies. The 2007, SRI in the Rockies Conference held a special pre-conference specifically to address the concerns of indigenous peoples. Healthy working conditions, fair wages, product safety, and equal opportunity employment also remain headline concerns for many social investors.
Socially responsible investing is a booming market in both the US and Europe. In particular, it has become an important principle guiding the investment strategies of various funds and accounts. Assets in socially screened portfolios climbed to $3.07 trillion at the start of 2010, a 34% increase since 2005, according to the US SIF's 2010 Report on Socially Responsible Investing Trends in the United States. From 2007 to 2010 alone, SRI assets increased more than 13%, while professionally managed assets overall increased less than 1%. As of 2010, nearly one of every eight dollars under professional management in the US is involved in socially responsible investing—12.2% of the $25.2 trillion in total assets under management tracked by Thomson Reuters Nelson.
Research estimates by financial consultancy Celent predict that the SRI market in the US will reach $3 trillion by 2011. The European SRI market grew from €1 trillion in 2005 to €1.6 trillion in 2007.
Government-controlled funds such as pension funds are often very large players in the investment field, and are being pressured by the citizenry and by activist groups to adopt investment policies which encourage ethical corporate behavior, respect the rights of workers, consider environmental concerns, and avoid violations of human rights. One outstanding endorsement of such policies is The Government Pension Fund of Norway, which is mandated to avoid "investments which constitute an unacceptable risk that the Fund may contribute to unethical acts or omissions, such as violations of fundamental humanitarian principles, serious violations of human rights, gross corruption or severe environmental damages."
Many pension funds are currently under pressure to disinvest from the arms company BAE Systems, partially due to a campaign run by the Campaign Against Arms Trade (CAAT). Liverpool City Council has passed a successful resolution to disinvest from the company, but a similar attempt by the Scottish Green Party in Edinburgh City Council was blocked by the Liberal Democrats.
Mutual funds and ETFs
Socially responsible mutual funds counted by the 2010 Trends Report increased in number to 250 in 2010, up from 173 in 2005 & 2007, 189 in 2003, and 167 in 2001. The overall number of mutual funds incorporating ESG has increased 45% since 2007. Additionally, 26 exchange-traded funds (ETFs) that incorporate ESG criteria were identified with $4 billion in assets at the end of 2009, a 76% increase from the eight ETFs with $2.25 billion in net assets identified at the end of 2007 . Unlike the Employee Retirement Income Security Act of 1974 (ERISA), which severely limits the extent to which socially responsible goals can be considered in managing corporate and Taft-Hartley pension assets (due to ERISA's overriding goal of protecting employees' pensions), registered investment companies can take these factors into account so long as the disclosure and other requirements of the Investment Company Act of 1940 are met. US SIF maintains charts describing the socially responsible mutual funds offered by its member firms.
- Key: X = No investment; P = Positive investment; R = Restricted investment; NS = No screens.
|Mutual Fund||Alcohol||Tobacco||Gambling||Defense/ Weapons||Animal Testing||Products/ Services||Environment||Human Rights||Labor Relations||Employment/ Equality||Community Investment||Proxy Voting|
|Access Capital Strategies Community Investment Fund||NS||NS||NS||NS||NS||NS||NS||NS||NS||NS||P||X|
|AHA Balanced Fund - Instiutional Class||NS||X||NS||NS||NS||NS||NS||NS||NS||NS||NS||V|
|AHA Diversified Equity Fund - Institutional Class||NS||X||NS||NS||NS||NS||NS||NS||NS||NS||NS||V|
|AHA Diversified Equity Fund - N Class||NS||X||NS||NS||NS||NS||NS||NS||NS||NS||NS||V|
|AHA Full Maturity Fixed Income Fund - Institutional Class||NS||X||NS||NS||NS||NS||NS||NS||NS||NS||NS||V|
|AHA Full Maturity Fixed Income Fund - N Class||NS||X||NS||NS||NS||NS||NS||NS||NS||NS||NS||V|
|AHA Limited Maturity Fixed Income Fund - Institutional Class||NS||X||NS||NS||NS||NS||NS||NS||NS||NS||NS||V|
|AHA Limited Maturity Fixed Income Fund - N Class||NS||X||NS||NS||NS||NS||NS||NS||NS||NS||NS||V|
|AHA Socially Responsible Equity I||X||X||X||X||NS||P||P||P||P||P||NS||V|
|AHA Socially Responsible Equity N||X||X||X||X||NS||P||P||P||P||P||NS||V|
|Ariel Appreciation Fund ||NS||X||NS||X||NS||NS||NS||NS||NS||NS||NS||V|
|Ariel Focus Fund||NS||X||NS||X||NS||NS||NS||NS||NS||NS||NS||V|
|Azzad Ethical Income Fund ||X||X||X||X||NS||NS||NS||NS||NS||NS||NS||V|
|Azzad Ethical Mid Cap Fund||X||X||X||X||NS||NS||NS||NS||NS||NS||NS||V|
|Calvert Aggressive Allocation Fund ||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Capital Accumulation A ||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Capital Accumulation B ||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Capital Accumulation C ||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Conservative Allocation Fund ||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Global Alternative Energy Fund A ||NS||NS||NS||NS||NS||P||P||P||P||P||NS||V|
|Calvert Global Water Fund ||X||NS||NS||X||NS||X||NS||P||NS||NS||NS||V|
|Calvert International Opportunities Fund ||R||R||NS||NS||NS||P||P||P||P||P||NS||V|
|Calvert Large Cap Growth A||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Large Cap Growth B||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Large Cap Growth C||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Large Cap Growth I||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Mid Cap Value Fund||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Moderate Allocation Fund||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert New Vision Small Cap A||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert New Vision Small Cap B||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert New Vision Small Cap C||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Small Cap Value Fund||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Social Index A||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Social Index B||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Social Index C||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Social Index I||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Social Investment Balanced A||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Social Investment Balanced C||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Social Investment Bond A||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Social Investment Enhanced Equity A||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Social Investment Enhanced Equity B||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Social Investment Enhanced Equity C||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Social Investment Equity A||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Social Investment Equity C||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert Social Investment Equity I||X||X||X||R||R||P||P||P||P||P||P||V|
|Calvert World Values International A||X||X||NS||R||NS||P||P||P||P||P||P||V|
|Calvert World Values International C||X||X||NS||R||NS||P||P||P||P||P||P||V|
|CRA Qualified Investment ||NS||NS||NS||NS||NS||NS||NS||NS||NS||NS||P||X|
|Domini European PacAsia Social Equity A ||X||X||X||X||NS||P||P||P||P||P||NS||V|
|Domini European PacAsia Social Equity I ||X||X||X||X||P||P||P||P||P||P||NS||V|
|Domini European Social Equity A||X||X||X||X||NS||P||P||P||P||P||NS||V|
|Domini European Social Equity I||X||X||X||X||NS||P||P||P||P||P||NS||V|
|Domini Institutional Social Equity||X||X||X||X||NS||P||P||P||P||P||NS||V|
|Domini PacAsia Social Equity A||X||X||X||X||NS||P||P||P||P||P||NS||V|
|Domini PacAsia Social Equity I||X||X||X||X||NS||P||P||P||P||P||NS||V|
|Domini Social Bond ||X||X||X||X||NS||P||P||P||P||P||P||V|
|Domini Social Equity A||X||X||X||X||NS||P||P||P||P||P||NS||V|
|Domini Social Equity I||X||X||X||X||NS||P||P||P||P||P||NS||V|
|Epiphany Faith and Family Values 100 Fund - A Class ||R||R||R||R||NS||NS||P||P||P||P||NS||V|
|Epiphany Faith and Family Values 100 Fund - C Class||R||R||R||R||NS||NS||P||P||P||P||NS||V|
|Epiphany Faith and Family Values 100 Fund - N Class||R||R||R||R||NS||NS||P||P||P||P||NS||V|
|Gabelli SRI Green Fund Inc A||R||R||R||X||NS||P||P||NS||NS||NS||NS||V|
|Gabelli SRI Green Fund Inc AAA ||R||R||R||X||NS||P||P||NS||NS||NS||NS||V|
|Gabelli SRI Green Fund Inc C||R||R||R||X||NS||P||P||NS||NS||NS||NS||V|
|Gabelli SRI Green Fund Inc I||R||R||R||X||NS||P||P||NS||NS||NS||NS||V|
|Green Century Balanced ||NS||X||NS||R||R||P||P||NS||NS||NS||NS||V|
|Green Century Equity||X||X||X||R||NS||P||P||P||P||P||NS||V|
|Integrity Growth and Income Fund ||X||X||X||NS||R||NS||P||R||R||R||NS||V|
|Legg Mason Prt Social Awareness Fund A||NS||R||NS||R||NS||NS||P||P||P||P||NS||V|
|Legg Mason Prt Social Awareness Fund B||NS||R||NS||R||NS||NS||P||P||P||P||NS||V|
|Legg Mason Prt Social Awareness Fund C||NS||R||NS||R||NS||NS||P||P||P||P||NS||V|
|MMA Praxis Core Stock Fund A ||X||X||X||X||R||P||P||P||P||P||P||V|
|MMA Praxis Core Stock Fund B||X||X||X||X||R||P||P||P||P||P||P||V|
|MMA Praxis Growth Index Fund A||X||X||X||X||R||P||P||P||P||P||P||V|
|MMA Praxis Growth Index Fund B||X||X||X||X||R||P||P||P||P||P||P||V|
|MMA Praxis Intermediate Income A||X||X||X||X||R||P||P||P||P||P||P||V|
|MMA Praxis Intermediate Income B||X||X||X||X||R||P||P||P||P||P||P||V|
|MMA Praxis International A||X||X||X||X||R||P||P||P||P||P||P||V|
|MMA Praxis International B||X||X||X||X||R||P||P||P||P||P||P||V|
|MMA Praxis Small Cap Fund A||X||X||X||X||R||P||P||P||P||P||P||V|
|MMA Praxis Small Cap Fund B||X||X||X||X||R||P||P||P||P||P||P||V|
|MMA Praxis Value Index A||X||X||X||X||R||P||P||P||P||P||P||V|
|MMA Praxis Value Index B||X||X||X||X||R||P||P||P||P||P||P||V|
|Neuberger Berman Socially Resp Inv ||X||X||X||X||R||P||P||P||P||P||NS||V|
|New Alternatives Fund ||X||X||X||X||X||P||P||P||P||P||P||X|
|Parnassus Equity Income Fund ||X||X||X||X||R||P||P||P||P||P||NS||V|
|Parnassus Fund ||X||X||X||X||R||P||X||P||P||P||P||V|
|Parnassus Income-Fixed Income ||X||X||X||X||R||P||X||P||P||P||NS||V|
|Parnassus Mid-Cap Fund ||X||X||X||X||R||P||P||P||P||P||P||V|
|Parnassus Small-Cap Fund||X||X||X||X||R||P||X||P||P||P||P||V|
|Parnassus Workplace Fund||X||X||X||X||R||P||X||P||P||P||P||V|
|Pax World Balanced||R||X||R||R||R||P||P||P||P||P||P||V|
|Pax World Growth||R||X||R||R||R||P||P||P||P||P||NS||V|
|Pax World High Yield||R||X||R||R||R||P||P||P||P||P||P||V|
|Pax World Value Fund - Individual Investor||NS||X||R||X||R||P||P||P||P||P||NS||V|
|Pax World Value Fund - Institutional Class||NS||X||R||X||R||P||P||P||P||P||NS||V|
|Pax World Women's Equity Fund - Individual Investor||NS||X||R||X||R||R||R||NS||R||R||NS||V|
|Pax World Women's Equity Fund - Institutional Class||NS||X||R||X||R||R||R||R||R||R||NS||V|
|Portfolio 21 ||NS||X||R||R||R||P||P||R||R||R||P||V|
|Portfolio 21 Institutional ||NS||X||R||R||R||P||P||R||R||R||NS||V|
|Sentinel Sustainable Core Opportunities Fund ||X||X||X||R||R||P||P||P||P||P||NS||V|
|Sentinel Sustainable Emerging Companies Fund||X||X||X||R||R||P||P||P||P||P||NS||V|
|Flex Total Return Utilities Fund ||X||X||X||X||X||P||P||NS||P||P||NS||V|
|Vanguard FTSE Social Index Fund|
|Walden Social Balanced Fund||X||X||R||X||R||P||P||P||P||P||P||V|
|Walden Social Equity Fund||X||X||R||X||R||P||P||P||R||P||X||V|
|Winslow Green Growth Fund ||R||R||R||R||R||P||P||NS||NS||NS||NS||V|
Separately managed accounts
According to the 2010 Report on Socially Responsible Investing Trends in the United States, among separate account managers, 232 distinctive separate account vehicles or strategies, with $122.4 billion in assets, incorporated ESG factors into investment analysis. Where a separate account is subject to ERISA, there are legal limitations on the extent to which investment decisions can be based on factors other than maximizing plan participants' economic returns.
Shareholder resolutions are filed by a wide variety of institutional investors, including public pension funds, faith-based investors, socially responsible mutual funds, and labor unions. In 2004, faith-based organizations filed 129 resolutions, while socially responsible funds filed 56 resolutions.
Regulations governing shareholder resolutions vary from country to country. In the United States, they are determined primarily by the Securities and Exchange Commission, which regulates mutual funds and applies the 1940 Act and by the Department of Labor, which regulates certain plans and applies ERISA.
These regulatory regimes require pension plans and mutual funds to disclose how they voted on behalf of their investors. U.S. shareholders have organized various groups to facilitate jointly filing resolutions. These include the Council of Institutional Investors, the Interfaith Center on Corporate Responsibility, and the US SIF.
From 2008 through 2010, more than 200 US institutions and investment management firms filed or co-filed proposals. These institutions and money managers collectively controlled $1.5 trillion in assets at the end of 2009. The top categories of environmental and social issues from 2007 to 2010 were political contributions and climate change and environmental issues.
Community investing, a subset of socially responsible investing, allows for investment directly into community based organizations. Community investing institutions use investor capital to finance or guarantee loans to individuals and organizations that have historically been denied access to capital by traditional financial institutions. These loans are used for housing, small business creation, and education or personal development in the US, or are made available to local financial institutions abroad to finance international community development. The community investing institution typically provides training and other types of support and expertise to ensure the success of the loan and its returns for investors.
Community investing grew more than 60% from 2007 to 2010. Assets held and invested locally by community development financial institutions (CDFIs) based in the US totaled $41.7 billion at the start of 2010, up from $25 billion in 2007.
Investing in capital markets
Social investors use several strategies to maximize financial return and attempt to maximize social good. These strategies may satisfy the ethical principal of non-harming, but with the exception of shareholder activism/engagement, they do not necessarily create positive social impact.
Negative screening excludes certain securities from investment consideration based on social and/or environmental criteria. For example, many socially responsible investors screen out tobacco company investments.
The longest-running SRI index, the Domini 400—now the MSCI KLD 400—was started in May 1990. It has continued to perform competitively —with average annualized total returns of 9.51% through December 2009 compared with 8.66% for the S&P 500.
Despite this impressive growth, it has long been commonly perceived that SRI brings smaller returns than unrestricted investing. So-called "sin stocks", including purveyors of tobacco, alcohol, gambling and defense contractors, were banned from portfolios on moral or ethical grounds. And shutting out entire industries hurts performance, the critics said. However, in a comprehensive study, financial economists Lobe, Roithmeier, and Walkshäusl taking the position of the advocatus diaboli, answer the question whether to invest in a socially responsible way – or not? They create a set of global and domestic sin indexes consisting of 755 publicly traded socially irresponsible stocks around the world belonging to the Sextet of Sin: adult entertainment, alcohol, gambling, nuclear power, tobacco, and weapons. They compare their stock market performance directly with a set of virtue comparables consisting of the most important international socially responsible investment indexes. They find no compelling evidence that ethical and unethical screens lead to a significant difference in their financial performance, which is in contrast with the results of prior studies on sinful investing.
Divesting is the act of removing stocks from a portfolio based on mainly ethical, non-financial objections to certain business activities of a corporation. Recently, CalSTRS (California State Teachers' Retirement System) announced the removal of more than $237 million in tobacco holdings from its investment portfolio after 6 months of financial analysis and deliberations.
Shareholder activism efforts attempt to positively influence corporate behavior. These efforts include initiating conversations with corporate management on issues of concern, and submitting and voting proxy resolutions. These activities are undertaken with the belief that social investors, working cooperatively, can steer management on a course that will improve financial performance over time and enhance the well being of the stockholders, customers, employees, vendors, and communities. Recent movements have also been reported of "investor relations activism", in which investor relations firms assist groups of shareholder activists in an organized push for change within a corporation; this is done typically by leveraging their enhanced knowledge of the corporation, its management (often via direct relationships), and the securities laws as a whole. Hedge funds are also major activist investors; while some pursue socially responsible investing goals, many simply are seeking to maximize fund returns. Pension plans subject to ERISA are somewhat more constrained in their ability to engage in shareholder activism or the use of plan assets to promote public policy positions; any expenditure of plan assets must be aimed at enhancing participants' retirement income.
A less vocal subtype of shareholder activism, shareholder engagement requires extensive monitoring of the non-financial performance of all portfolio companies. In shareholder engagement dialogues, investees receive constructive feedback on how to improve ESG issues within their sphere of influence.
Positive investing is the new generation of socially responsible investing. It involves making investments in activities and companies believed to have a positive social impact. Positive investing suggested a broad revamping of the industry's methodology for driving change through investments. This investment approach allows investors to positively express their values on corporate behavior issues such as social justice and the environment through stock selection --- without sacrificing portfolio diversification or long-term performance. Positive screening pushes the idea of sustainability, not just in the narrow environmental or humanitarian sense, but also in the sense of a company's long-term potential to compete and succeed.
By investing directly in an institution, rather than purchasing stock, an investor is able to create a greater social impact: Money spent purchasing stock accrues to the stock's previous owner and may not generate social good, while money invested in a community institution is put to work. For example, money invested in a Community Development Financial Institution may be used by that institution to alleviate poverty or inequality, spread access to capital to under-served communities, support economic development or green business, or create other social good. In 1984, Trillium Asset Management's founder, Joan Bavaria, invited Chuck Matthei| of the Institute for Community Economics (ICE), an organization that helps communities create and sustain land trusts, to a meeting of US SIF (formerly the Social Investment Forum). It is likely that this was the first time a nonprofit organization with a loan fund would meet directly with SRI managers. Trillium clients began investing in ICE later that year.
In Impact investing, an investor will actively seek to place capital in businesses and funds that combine financial and social returns. These businesses can thus provide social or environmental impact at a scale that purely philanthropic interventions usually cannot reach. This capital may be in a range of forms including equity, debt, working capital lines of credit, and loan guarantees. Examples in recent decades include many investments in microfinance, community development finance, and clean technology. Impacting investing has its roots in the venture capital community, and an investor will often take active role mentoring or leading the growth of the company or start-up. Impact investing has become prominent in international development, where funds and organizations such as the Acumen Fund, Rockefeller Foundation, the Grassroots Business Fund, the Skoll Foundation and Verde Ventures are using this approach.
Socially responsible investing is a global phenomenon. With the international scope of business itself, social investors frequently invest in companies with international operations. As international investment products and opportunities have expanded, so have international SRI products. The ranks of social investors are growing throughout developed and developing countries. Trade organizations keeping track of some of this growth include the US SIF: The Forum for Sustainable and Responsible Investment in the U.S., the Social Investment Organization in Canada, EuroSIF in the E.U., the Association for Sustainable and Responsible Investment in Asia, and the Responsible Investment Association of Australasia. In 2006, the United Nations Environment Programme launched its Principles for Responsible Investment. The Principles provide a framework to help investors incorporate environmental, social, and governance (ESG) factors into the investment process.
Ethical investment in the UK
In 1985, Friends Provident launched the first ethically screened investment fund with criteria which excluded tobacco, arms, alcohol and oppressive regimes. Since 1985, over 90 investment funds have launched offering a wide range of investment criteria; both negatively screened and with positive investment criteria i.e. investing into companies involved in promoting sustainability.
Since 1985, most of the major investment organizations have launched ethical and socially responsible funds, although this has led to a great deal of discussion and debate over the use of the term "ethical" investment. This is because each of the fund management organizations tend to apply a slightly different approach to running their funds.
In recent years there has been growth in the market for high social impact investments, this is a new style of investing where the businesses receiving investment have social or environmental goals as a primary purpose.
As of June 2011, GBP 11.3 billion were invested in ethical and environmental investment funds in the UK.
Ethical investment in higher education
In 2007, the Dwight Hall organization at Yale University launched the first undergraduate-run socially responsible investment fund in the United States. The Dwight Hall Socially Responsible Investment Fund was initially seeded with $50,000 of the Dwight Hall organization's endowment and is managed by a committee of ten undergraduate Yale College students. The DHSRI fund makes use of traditional methods of socially responsible investing to have a positive environmental and social impact while aiming to outperform standard investment benchmarks and maximize financial return.
The first student managed (undergraduate or graduate) investment fund to employ socially responsible investing was the Arnone-Lerer fund at Villanova University in January 2004 which made its first investments in March 2004. <http://www.students.villanova.edu/smf/fund_performance.htm> The fund has been managed according to the Catholic Bishops' Statement on Socially Responsible Investment. The SMF program at Villanova currently includes 170 students managing five different investment funds and offers four academic courses (12 credits) per year.
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- According to figures published by Celent 13 March 2007.
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- One of the SRI labels of French research centre Novethic is for engagement funds, like the funds initiated by Fondation Guilé.
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