Socially responsible investing, or SRI, is a strategy of investing that seeks to maximize financial returns just like every other investment strategy, but also attempts to maximize social good. SRI is becoming very popular recently, accounting for about eleven percent of the $25.1 Trillion of assets under management as of 2007 according to SocialFunds.com, but SRI is not a new concept. Religious institutions have engaged in SRI with their funds as well as encouraging their followers to invest responsibly for hundreds of years. Religious groups have attacked issues such as slavery and workers rights through investment decisions on a strictly moral ground.
In the 1960’s SRI began to grow with the use of negative screens. Negative screens are devices investment professionals use to restrict investment in companies that engage in various activities such as arms production, tobacco, gambling, and liquor. Negative screens have also been used in divestment campaigns, most notably to end apartheid in South Africa.
Although many people contend that negative screens and SRI is a bad financial decision because it limits the investors, recent data has begun to show that may not be the case. Many reports are emerging that show SRI funds outperforming non-SRI funds, and many investors are beginning to understand responsibility as a metric for financial success. Not only does responsibility represent a major risk to organizations due to evolving market drivers such as climate change and resource scarcity, but governmental changes also have the potential to catapult responsible companies into financial success with programs such as sustainable spending from the stimulus, corporate governance reform due to the crisis and cap and trade programs.
Since SRI is not only a moral choice, but also a financial benefit, more institutions will now hopefully recognize it as a necessity. Not only will this earn them better returns, but also make the world a better place!