Socially Responsible Investing (SRI) is any form of financial investment that seeks to combine non-harmful social impact with financial return. SRI promotes practices that consciously focus on human rights and social justice issues, fair trade, diversity and consumer and environmental protection. SRI stocks often avoid the so-called “sin stocks” — areas such as pornography, weapons and the military, alcohol and tobacco. Some who practise SRI also refuse to have investments in oil/gas and mining or in certain countries where human rights abuses continue. People are choosing SRI not just to avoid the negative “sin stocks,” but also because they want to positively invest in their communities and make a difference in the world while they earn money.
The desire that investments do social good, not just make profit regardless of negative consequences, has a religious background in Western culture. Both the Quakers and early Methodists in England 250 years ago advised their adherents to not support businesses that engaged in slavery or perpetrated unhealthy working conditions. This impulse to care for the human race and the planet, though no longer always derived from a religious or spiritual sensibility, propels today’s belief that SRI needs to become more widespread.
In its beginnings in the 1960s, modern SRI was considered by many to be a nice ideal, but impractical. Many held the notion that investment goes where profit grows, and that there would never be enough investors or interest in SRI for that reason. It was considered dangerous as well, I suspect, because people thought that if companies had to start being accountable for how they were making their profits, those profits might drop. This could lead to bankrupcy and money loss for investors.
However, SRI is now in the trillions of dollars. Depending on the investment fund, who manages it, its diversity and other basic investing principals, SRI funds are holding their own in terms of making profit for investors. In 2011, two economists produced a study entitled Vice vs. Virtue Investing Around the World in which they found “no compelling evidence in the data that ethical and unethical screens [to investment options] led to a significant difference in their financial performance.”
It appears that you can engage in SRI and be both virtuous and financially successful at the same time. However, like all investing, it has to be done carefully, with due attention to your capacity for risk, how much time you have to invest, the reputability of the company with which you are dealing and the wisdom and knowledge of your advisor. You don’t want to be sick to your stomach when you read about wild market swings in the morning newspaper.
One thing is certain: if more people decide to invest in SRI portfolios, less money will be invested in enterprises that are more harmful to the planet, to human beings and to our societies. This means that some of these investments will die out through lack of interest or a healthy disgust at their barbarity (for example, the recent closing of the last asbestos mine in Canada).
If you’d like to learn more about SRI, the Canadian Association for Socially Responsible Investment is a good place to start (socialinvestment.ca).
In the next Uncommon Cents column, we will look at the TFSA, a four-letter acronym that can save you money on your taxes (to a point), and how it fits into an overall savings strategy.