Question: Making money and doing good often don’t align well. But from an investor’s standpoint, can both be achieved by investing in companies that do good?
Answer: Yes. This investment philosophy, known as socially responsible investing, or SRI, has a special appeal to many individuals concerned with the future of our planet.
Q: How much demand is there among investors for such investments? Is it 1 out of 10? More? Less?
A: It’s hard to put it into those terms, but statistics indicate growing demand in general. As of 2012 there were 333 mutual fund products in the U.S. that fell under the SRI criteria with assets of $640.5 billion. In 1995 there were 55 funds with $12 billion in assets.
Q: Do a lot of SRI choices exist?
A: There are mutual funds, stocks, bonds and ETFs (exchange-traded funds) that use SRI strategies as part of their objectives and portfolio choices.
Q: How can consumers find such investment options? Are there lists of these types of mutual funds?
A: SRI World Group Inc., a news, research and consulting firm that advises clients regarding sustainability investment issues and corporate responsibility practices, maintains a website (SocialFunds.com) for mutual funds. The Forum for Sustainable and Responsible Investment (socialinvest.org) is a nonprofit organization that promotes socially and environmentally responsible investing. These websites can provide extensive information to help people get started. You can view lists of mutual funds while comparing and screening for expenses, fees, risk and return.
Q: What about individual company stocks? Are there lists with Coca-Cola, Costco and ConocoPhillips rated somewhere for social responsibility?
A: The FTSE KLD 400 Social Index provides exposure to stocks of companies determined to have positive environmental, social and governance characteristics.
Q: What areas or issues are the most common SRI focuses?
A: Those dealing with environmental issues like climate change or an organization’s carbon footprint, consumer protection, religious beliefs, shareholder advocacy, community investing and human rights are some of the common focuses.
Q: Is it left to mutual-fund managers to determine whether a company is socially responsible, or are there independent organizations that rate companies along these lines?
A: Fund managers would do their due diligence using corporate and industrial analysis and follow established environmental, social and governance criteria set up by the company. Many companies have their own analysts who research both the financial performance as well as the SRI criteria.
Q: Does investing in socially responsible stocks or mutual funds come at the expense of returns?
A: As with all types of investing, there are trade-offs. Those who practice SRI can feel good that their investment choices reflect their values. However, socially responsible investors must balance this benefit with more limited choices with regards to portfolio diversification. The investor needs to do the research and approach these investments like any other investments.
