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Socially Responsible Investing

Many people and institutions are becoming more aware of the impact that their spending and investing has on society, on policy and on the environment. Frequently social, medical and economic analysts have noticed surfacing issues that are the result of effects of personal and group behavior, often associated with consumption, values and assumptions that combined cumulatively have adverse affects. For instance, tobacco smoking for hundreds of years was deemed to be a tolerable indulgence, but as its effects on cancer deaths and other cardiovascular disease became known, it became an issue of parental, social, corporate and governmental responsibility. As civilization progresses, humanity is confronted more and more by the relative values that are expressed by the choices we make. Thus the end of slavery in the United States, the vote for women, even amendments to the constitution such as prohibition, are indicative of social values shifting to embrace new or emerging paradigms. Socially responsible investing is a means of focusing an owner's investment resources in directions that further that owner's values and hopes, from a religious, social, economic, humanistic or philosophical perspective.

Of course, socially responsibility investing, abbreviated sri, is often controversial and the rationales difficult to prove. Sri is sometime accused of being a pattern of political correctness by an elite faction. Other times it is framed as being part of a fundamentalist religious ideology, or a pernicious loosing of values that is eroding family cohesiveness. No doubt in our current global society, sri has become a part of the culture wars that are waged throughout the world. Yet rather than label the choices which sri distinguishes as a problem, it is best to recognize that sri merely creates a mechanism to make choices among alternatives that are ranked as having beneficial effects from an owner's standpoint. This is what humans have done throughout history in their personal economic decisions. So sri will not disappear, and in a more constrained world, it will become more important.

Sri has for the most part been embraced as a marketing tool for mutual funds that hope to attract investors from various investor segments. Funds have been formed to meet certain criteria that are espoused by critical masses in these segments. For instance, a number of funds categorically avoid alchohol, tobacco and firearms, while others are clean energy funds or avoid armament manufacturers. Clearly there is a distinction between funds that avoid certain industries from funds that embrace certain industrial endeavors. A number of funds are built around the values of specific religious groups, such as Catholicism and Islam. As such, these funds are a mixture of both avoidance and advocacy strategies.

The problem for most socially responsibile investors is that one's values rarely align simply along the lines drawn up in a mutual fund's mission statement. For instance, perhaps one is not quite so concerned about alchohol but more concerned about tobacco and firearms. Or perhaps perscription opiods are a larger issue in your state and are not part of the sri mutual fund offerings. Or perhaps racism or sexism are of great concern to the investor, but these corporate practices are not discernable within the sri mutual fund. In other words, sri values tend to be complex and personal, not easily translated into the mutual fund structures involving hundreds or thousands of firms' common stock. Finally, some issues such as climate change or income inequality are truly relativistic, where every firm has some responsibility for the problem inherently, though to a differing extent. These factors make mutual funds a blunt instrument for investors interested in sri.

One approach that can work is ask an advisor to actively manage a portfolio of common stocks and bonds directly with the client. With this approach, social responsibility becomes one aspect of a total investment screen for each and every investment that includes financial measures, sector diversity, market correlation and investor returns. Thus each investment is judged on its own terms by managing advisors before it is allowed to become part of specific portfolio. Thus an investor can specify that the portfolio should focus on avoiding fossil fuels, or certain firms that market objectionable drugs, or companies that poorly treat employees in some way. Furthermore, the investor, by selecting advisors who are willing to review these sri criteria with them, has an addition means of verifying that their sri stipulations along with their financial requirements are being met.


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