An investment process that considers the environmental, social, and governance consequences of corporate policies and practices, both positive and negative, within the context of rigorous financial analysis.
Responsible investing takes a longer term perspective, recognizing that environmental and social benefits and costs are rarely expressed on a quarterly cycle.
Source: “Socially Responsible Investing: an Introduction,” Calvert: (2003) What is Responsible Investing?
Social investing has long historical roots in the U.S., dating back to the late 1600s, when religious investors elected to invest in accordance with their beliefs in human equality and nonviolence.
Origins of Social Investing 1920’s 1960’s 1980’s Sin Stocks
Typical Decision Process Pax World – US$ 2.53Bi Environment Climate change Community Indigenous People Welfare Labor Relations Product Safety and Integrity Diversity Workplace healthy and safety Corporate governance Gender Empowerment Human Rights Double Diligence Financial Analysis Social Analysis Calvert – US$ 3.17Bi Governance and Ethics Workplace Environment Product Safety & Impact International Operations and Human Rights Indigenous people’s rights Community relations
Looking over the various screens that are commonly used, firms wishing to pass muster with those managing such funds should eschew lines of business that involve alcohol, gambling, nuclear power, defense contracting, animal testing, etc.
It should be clear that there is some ambiguity here. For instance, medical research suggests that alcohol in the form of one glass of wine a day is good for one’s health. Nuclear power, with all of its challenges, is free of carbon dioxide, the predominant greenhouse gas. Dilemmas with defense contracting and animal testing also exist.
Rather, firms should embrace shareholder advocacy, R&D, renewable energy, strong union relationships, employee empowerment and diversity.
Source: “ 2007 Report on Socially Responsible Investing Trends in the United States;” Social Investment Forum 2007 $2.7 trillion – the amount invested in RI-screened accounts (mutual funds, institutional investors and high-net-worth individuals) The RI Market: Exhibiting Solid Growth
Why? Recall from the lists of screens that investments in R&D are seen as a good thing when screening for good companies, so too are the absence of pollution problems and the presence of stock ownership plans for employees.
These tend to be characteristics of so-called high tech firms, especially those organized around the internet and other communications and information technologies.
This means that many RI-managed funds tend to be tech-heavy, struggling along with NASDAQ over the last few years.
Lackluster RI Performance
Responsible Investing - Domini Investments “Live Link”