Socially Responsible/Ethical Investing

What is Socially Responsible Investing (SRI)?

Socially responsible investing is the application of peoples’ values to their investments. It includes all the financial decision making processes that are a part of a prudent investment management approach, but it also includes the selection and management of investments based on ethical, moral, social or environmental concerns.

Socially concerned investors are looking:

• To avoid unethical investments which damage others or the environment; and/or,
• To promote environmentally and socially responsible investments such as green and sustainable technologies.

Socially responsible investing integrates financial goals with positive personal values to give investors a voice in shaping the future of society. The dilemma of SRI is that everyone’s vision of a better society is different. Some investors are more concerned about environmental problems, some feel strongly about the impact of certain products such as tobacco, alcohol or weapons. There are, therefore, many different angles to socially responsible investing.

What is the history of SRI?

The idea of combining social with financial judgments in the investment process is not a recent phenomenon. In biblical times, Jewish laws laid down directives on how to invest according to ethical values and Quakers practised socially responsible investing as early as the 19th century based on their beliefs in human equality and non violence. In the 19th and early 20th centuries, Victorian social concerns such as temperance and just employment conditions resulted in church groups like the Methodists avoiding investments involving tobacco, alcohol and gambling.

However, the current movement really began in the United States during the Vietnam War when increasing numbers of investors did not want their money going to support that war. The turning point for socially responsible investors came during the campaign to eliminate the racial discrimination of apartheid in South Africa, with the movement during the 1980s to divest from companies doing business there.

Today there are a large number of social and environmental issues that investors can use to select investments and below is a list of the most common:

• Charitable contributions. How much and what kinds of charities does a company contribute to?

• Community involvement. Does a company support local programs strengthening the community in which it operates?

• Corruption. Does a company have a history of working with regimes that operate in corrupt ways?

• Ecology and environment. Does a company operate according to sustainable development practices? Incidents like the Exxon Valdez oil spill or the Bhopal Union Carbide plant disaster, along with repeated warnings about toxic waste, global warming and other environmental threats continue to reinforce the seriousness of environmental concerns.

• International human rights. Does a company operate in countries respecting human rights?

• Labour relations. Does a company have a good record with regard to treatment of its employees? Do contractors of the company use sweatshop or child labour?

• Military weapons. Is a company a major military contractor?

• Minority groups. Does a company have a good record in dealing with minority groups?

• Nuclear power. Does a company generate nuclear power or contribute to the nuclear power industry?

• Product safety and quality. Does a company produce safe, reliable products or services? Does its advertising truly represent its products or services?

• Women. Does a company have a good record on its treatment of women generally and its female employees in particular?

 Many superannuation and investment platforms offer a variety of SRI funds – speak to Life Planning Solutions’ advisers about the most appropriate ethical investment option for you.