Socially Responsible Investment

There are many definitions of SRI, usually involving words like sustainable, ethical and responsible but what is SRI?

A Scottish youth minister suggested their share of the £9m government fund to help those areas particularly hit by youth unemployment could be sustainable investment. Quite true. If the result is that thousands of young people find work who would not have if they didn't have access to this fund. We know the benefits of reduced unemployment, the ability to feed the local economies etc. Would it be as simple as that? Can you just throw money at unemployment and make it ok? Probably not so what's being sustained? And in any case, couldn't we say all government spending was socially responsible since it all contributes to the welfare of society?

Back in January a UN panel said that governments must look beyond the standard economic indicator GDP. In their view, sustainability is about reducing poverty and improving the quality of life for millions of people, not profit, and the financial crisis was (at least in part) caused by short termism and did not reward sustainable investment.

'Sustainability', it's used so often these days, in so many different contexts from tuna fishing to fossil fuel excavation but what does it mean in regard to investment? And what's the priority? Sustainability or a good return? Do you have to be able to afford to be sustainable?

Social conscious, value based, morals, ethical investing which considers social and environmental factors, surprisingly SRI has it's roots in religion, I remember the sanctions against South Africa and protests at Greenham Common, people chose not to be connected, even through investment, to organisations (or countries) who behaved in a way in which they did not approve. They voted with their feet. But in today's global economic society can we be sure that what we invest in is socially responsible?

The way in which SRI is defined makes it subjective, what's an important moral issue to me based on my values and traditions may not be to you. What to you is an undesirable activity may to me to perfectly acceptable. Divesting securities means to remove selected investments from a portfolio based on certain social or environmental criteria, nice idea but it's not without cost. Shareholder activism also falls under this governance function whereby shareholders can apply pressure to avoid such practices as exploitative overseas labour.

But is it more expensive to invest responsibly? I assumed so until I read that the Domini 400 Social Index, the first benchmark for equity portfolios subject to multiple social screen, set up in 1990 had outperformed the S&P 500 every year since it's inception.

Social responsibility is the principle that companies should contribute to the welfare of society and not be solely devoted to maximising profits, but it doesn't look like you have to choose?





Sources: FT, BBC News. investopedia.com