In the last few years, socially responsible investments (SRIs) have gained pace and taken on more activist roles. So-called ethical investing focuses on a myriad of things such as environmental issues and human rights, and is sometimes motivated by religious beliefs. An article last November by the Financial Times notes the rise of SRIs to mainstream status in the U.S. In fact, assets in SRI mutual funds grow almost 50% in less than four years, according to figures from Lipper.
In the past, SRI funds were more defined by typical no-nos, such as tobacco and gambling, but the standards seem to have widened to more proactively addressing human-rights and environmental issues. The FT says SRI funds now embrace companies with ethical standards rather than just rejecting the obvious. Ethical Investments, a UK wealth management groups, calls these different methods either “positive screening” (looking for companies with desirable characteristics) or “negative screening” (eliminating companies with undesirable characteristics). Some funds even go so far as to “engage” with companies to promote better decision-making.
One high-profile investment activist group has been featured in several news outlets in the last year. Investors Against Genocide is a non-profit organization aimed at convincing mutual funds and other investment firms to change their strategies to avoid contributing to genocide in the Sudan. How are these companies allegedly funding genocide? By investing in several oil companies that are partnered with the Sudanese government to help fund the genocide in Darfur. Recently the group won a victory of SEC support that could help them in the coming months.
In addition to human rights, the environment is obviously a large focus of socially responsible investing. Virgin Money recently hopped on the green boat and launched a Climate Change Fund. The company says research shows that environmentally friendly companies can actually outperform their less-so competitors, as consumers increasingly demand environmentally friendly products.
An article in 2005 by the BBC notes the “performance myth” of SRIs : While some have said they will not do as well as other funds, the SRIs actually are likely to be the better performers of the future. Two years later, while it is not proven that SRIs outperform other funds, Lipper data does show that SRI funds are on target with the average returns in the fund industry.
Being socially responsible can also be successful? Thats just too easy.
Ellie Behling, reporter
ebehling@www.globalcustodian.com