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WHAT IS SRI >> How SRI Works
Socially Responsible Investing (SRI) empowers shareholders
to use their assets for positive change. SRI encourages investors
to consider the social and environmental consequences of
a given investment, as a factor equally important to, and
reflective of, the investment’s financial performance.
Universities,
as owners of billions of dollars of stock, have incredible
potential to use these methods and reform
corporations to live up to the social and environmental
standards that the schools themselves typically embrace.
Investors use the following tools to promote corporate responsibility,
among others:
Company Dialogue
Shareholders write letters to malfeasant corporations,
requesting information on a certain matter or noting
their objections
to a certain policy. Sometimes dialogue in itself is
sufficient to lead to significant policy changes. For example,
FedEx
agreed to add sexual-orientation to its non-discrimination
policy after receiving a single letter from an investor.
Other times, shareholders decide that a proxy resolution
is necessary to induce the policy change requested.
Proxy Resolutions
A proxy or shareholder resolution calls for a company's
shareholders to vote on a concern over the company’s policy, and
is considered to be the strongest statement a shareholder
can make. Recent proxy resolutions have encouraged corporations
to: address concerns over racial discrimination, report on
the environmental consequences of their work, increase the
transparency of executive compensation policies, and respond
to the HIV/AIDS pandemic, among other causes.
Social Screening
Some SRI-focused investors have foregone efforts to reform
the worst corporations and funds; instead, these investors
only capitalize corporations they deem responsible. The
value, or popularity, of a corporation's stock is the
primary factor
in the corporation's access to funding for future growth.
By avoiding certain company’s stocks, SRI investors
are effectively limiting these corporations’ access
to capital. These investors choose “screened” funds,
where corporations are sifted through a screen that attempts
to remove the least-responsible corporations and reward
the most-responsible corporations.
Community Investing
Community investing has become increasingly popular,
in which investors provide resources for community developments
organizations
which fund low-income housing, or provide other types
of
financial support for community projects or individual
community members traditionally neglected by conventional
financial
institutions. These investments, unlike stocks, tend
to be long-term with a fixed rate of return.
Divestment
Divestment is perhaps the most extreme action an investor
can take to reprimand irresponsible corporations. This
strategy is extremely rare in the ever-conservative institutional
investment climate. If a University owns several million
dollars of a given stock, it can take weeks or months
to sell off each of those shares without eroding the
current
sale-price of the stock. Many institutional investors
spend months selecting a particular stock, and institutional
investors
tend to be value-oriented, purchasing a stock with the
intention of holding it for a significant period of time.
Thanks to
the expense of the selection process, institutional investors
are extremely reluctant to divest. For all of these reasons,
divestment is less readily accepted by universities than
the other SRI strategies mentioned above.
Other Approaches
These are some of the most common SRI strategies. This
review does not distinguish between types of assets (stocks,
bonds,
funds, private equity, real estate) that universities
hold, each of which can be examined for its social consequences.
If you have further questions, including how to research
your college’s holdings, please contact
us.
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