6 - 2011

For the Socially Conscious Investor, SRI Investing is Gaining Momentum

The following is a guest post from Forex Traders about socially responsible investing – a great way to plan for your future while protecting the future of others, as well.

Creating a well-balanced and diversified portfolio these days is a daunting task due to changing economic trends and uncertainty about future prospects in all sectors of our economy. Nevertheless, if you wish to make a difference in the social scheme of things by favoring companies that foster your concerns for humanity and the planet, then the exercise may appear to take on a higher level of difficulty. However, this need not be the case. Socially responsible investing, or “SRI” for short, has been gaining recent momentum, as it has experienced enormous growth across the globe.

Pension fund and investment managers have been drawn to the practice in high numbers in spite of the global recession’s financial impact over the past few years. Investments in this arena grew 13% since 2007, and the latest figures state that over $3 trillion, nearly one of every eight dollars under management, is devoted to this investing practice. In Europe, one in every six dollars, or $2.2 trillion, qualifies under the definition of socially responsible investing.

For the average investor that wants to participate in this trend, there are many books and websites that tout the benefits of putting your money where your mind is, as encapsulated by the general definition of this new investment strategy:

“Socially responsible investing, also known as socially-conscious or ethical investing, describes an investment strategy which seeks to maximize both financial return and social good by encouraging corporations to improve their practices on environmental, social, and governance issues.”

“Social good” is a general term with broad implications, best defined by each individual investor. Typically, the phrase encompasses issues of transparency in corporate governance activities, support for human rights and labor issues in the workplace, environmental and sustainability practices, and high integrity related to the public safety of all products and services. Ethical, moral, and religious considerations now influence the investment decision for SRI funds, and the investment industry has created a plethora of mutual and exchange-traded funds to satisfy the discerning tastes of any investor that desires to follow their heart and mind, yet be diversified and focused upon favorable returns.

The process is not without its critics. Disbelievers assert that the practice has evolved due to social pressure and intimidation, not for economic reasons. Most legislation in the area of investment fund management directs the manager to seek higher returns while mitigating risks appropriately. If assets are chosen outside of this guiding principle, does the fund administrator risk potential litigation from its participants? SRI supporters counter that maximizing shareholder return is all about the total return that is enhanced by maximizing all forms of value for both public stakeholders, related employee groups, and the community at large.

Clearly understood standards would go a long way to improving the present situation, but accountability in this area is difficult to assess. However, there have been several books on the topic that conclude that one need not sacrifice return for his socially conscious investment principles. A subset of investment managers already accepts this fact, and support continues to grow.

How should the average investor go about becoming socially responsible? One could adopt a “neutral” position by investing in socially “immune” commodities or activities like day trading but that practice would only involve going half way. Avoiding the negative is never as good as accentuating the positive. Selecting a proper screening method is the recommended path for accomplishing this effort.

If we follow the techniques of SRI fund managers, then we would apply both positive and negative screens to our search. The positive screen would select companies that respond to the social needs of society, lead in new green technologies, treat their employees well, and respect the preservation of human rights the world over. The “negative” screen would help avoid companies that produce products that are harmful to their user groups, whether they be individuals, communities, or the environment.

Judging by the number of books on the SRI topic, there is plenty of interest from industry insiders, consultants, and reporters alike. If you are thinking about embarking on this style of investing, then heed the words of Warren Buffett who said never to invest in something that you do not understand. A simple Internet search will produce a list of highly recommended books for your reading pleasure.

For the socially conscious investor, you can impact the world around you. SRI investing can bring not only reasonable returns, but also peace of mind.

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