Aligning Investing With Your Values

Posted by cskadmin on August 24, 2012

Socially responsible investing (SRI) uses nonfinancial screening criteria as part of the stock selection process. SRI criteria could potentially include corporate governance, environmental practices, employment policies, or health issues.

When building portfolios, certain investors consider their personal values as part of the investment selection process. Sustainable and responsible investment (SRI) accounted for more than $3 trillion in assets under management as of 2010, the latest data available, according to The Forum for Sustainable and Responsible Investment.1

What Is SRI?

SRI is the practice of using nonfinancial screening criteria as part of the stock selection process. Depending on a particular portfolio and its investment directive, SRI criteria are broad and potentially can include:

  • Corporate governance, or how a company’s management team shares rights and responsibilities with shareholders.
  • Environmental practices, such as forestry, mining, waste disposal, or hydraulic fracturing.
  • Employment policies, including diversity.
  • Practices of global suppliers.
  • Health issues, including products that could contribute to addictions or obesity.
  • Military use of a company’s product or service.
  • Products that are inconsistent with certain religious beliefs, such as use in abortions.
  • Geopolitical factors, such as a presence in a country where the government has supported war or genocide.

SRI has both advocates and critics. Those with a skeptical eye contend that investment decisions should be made solely on the basis of investment criteria. But advocates point to examples of SRI initiatives that have shifted traditional notions of investing to include a greater emphasis on the environment and a corporation’s impact on society.

Factors to Consider

For those interested in SRI, it may be worthwhile taking the following into account:

  • Because socially responsible funds are actively managed, their performance will not necessarily mirror broader market trends.
  • Actively managed mutual funds, including a socially responsible fund, are likely to have higher expenses compared with a passive investment.
  • It is difficult to compare socially responsible funds to one another because, in many instances, criteria for stock screening are different.
  • Using a socially responsible selection screen will not necessarily rule out a large portion of the investment universe. For example, a fund manager quoted on indicated that only about 5% of the stocks in the Russell 3000 Index, which represents the 3,000 largest publicly traded companies in the United States, would not be considered for his fund. 2

If you are interested in SRI, there are mutual funds whose investment criteria correspond to various types of SRI screens. It is possible for investors to screen individual securities on their own, but this could be very time consuming. SRI may not be for everyone, but it presents an additional way of viewing the investment universe.

1 Source: The Forum for Sustainable and Responsible Investment, Making a Difference: The Impact of Sustainable and Responsible Investing, March 2012.
2 Source:, “Leap of Faith: Does SRI Pay Off?” July 6, 2012.

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