SRI Is Not All Negative   Leave a comment

I recently read a magazine article that mentioned and dismissed SRI on the grounds that negative screens aren’t a good tool for finding good investments (in all senses of the word). I am so sick of seeing and hearing SRI dismissed as useless because people only think it involves negative screening! Or I’ll have someone tell me that SRI funds invest in Wal-Mart (or whatever), proving that they’re no different from any other fund. Yes, they do invest in Wal-Mart (or whatever), so that they can engage in shareholder activism.

For those not familiar with the terms, SRI means socially responsible investing or sustainable & responsible investing.  It is essentially based on the theory that companies that do good (or don’t do bad), do well financially in the long term. It is also based on the theory that as part-owners, investors have a responsibility to push companies in a positive direction. This usually revolves around social, environmental, and corporate governance issues. There are three basic strategies to SRI: negative screens, positive screens, and shareholder advocacy.

Negative screening means excluding companies that do not meet a specific criteria. For example, there are funds that exclude companies involved in tobacco or weapons manufacture. Or divestment strategies like the one used to help bring about the end of apartheid in South Africa, where investors stopped investing in companies that supported the apartheid.

Positive screening means including only companies that meet specific criteria. For example, investing only in companies that have effective pollution prevention programs or that have good health and safety track records. Some funds invest only in companies involved in renewable energy, or companies demonstrating gender equality around the world.

Shareholder advocacy means using the power of part-ownership to push for change. Shareholders can introduce and vote on shareholder resolutions. I’m not well versed in the rules for such things, but apparently if a shareholder resolution wins as little as 10-20% of the vote that is usually enough to cause the company’s management to address the issue. Shareholder resolutions can be about things like preparing a greenhouse gas inventory, limiting executive compensation, or promoting diversity.

Personally, I just invest in a couple of funds that use SRI strategies since I’m not comfortable getting into individual stock investments with my limited knowledge (and time). There are lots of options, and you don’t have to sacrifice financial returns. The green fund in my retirement plan at work is recovering from the recession more strongly than the other funds in the plan. It really is possible to have your cake and eat it too. Check out the Social Investment Forum for more info.

Posted November 24, 2010 by mayakey in advocacy, conscious living, money

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