SRI, faith-based choices let you invest in your values, issues
Q. What is Socially-Responsible Investing?
A. Socially responsible investing (SRI), also known as socially-conscious or ethical investing, describes an investment strategy which seeks to maximize financial returns while also promoting the social good. This is typically accomplished by adding both negative screens (excluding certain companies) and positive screens (actively pursuing companies that share common objectives or values) to traditional research methods to build a portfolio of investments. In general, socially responsible investors favor corporate practices that promote environmental stewardship, consumer protection, and human rights. Some (but not all) avoid businesses involved in alcohol, tobacco, and gambling. The areas of concern recognized by the SRI industry can be summarized as environment, social justice, and corporate governance.
Origins of SRI
Since the late 1990s, socially responsible investing has become increasingly associated with the environment and sustainable development. However, the origins of SRI are more closely tied to matters of morality and faith, dating back to 1758 when the Religious Society of Friends (Quakers) prohibited members from owning, dealing, or selling in the human slave trade. One of the most articulate early adopters of SRI was John Wesley (1703-1791), one of the founders of Methodism. Wesley’s sermon “The Use of Money” outlined his basic tenets of social investing – i.e. not to harm your neighbor through your business practices and to avoid industries which can harm the health of workers. A more modern example would be in the 1970s to early 1990s, when large institutions avoided investment in South Africa under apartheid. In 1971, the Rev. Leon Sullivan (at the time a board member for General Motors) drafted a code of conduct for practicing business in South Africa which led to the discovery that many U.S. companies were not addressing discrimination within South Africa. Soon thereafter, cities, states, colleges, faith-based groups and pension funds throughout the United States quickly began divesting from companies operating in South Africa, creating economic and political pressure that ultimately contributed to the end of apartheid.
Another form of screened-investing that has emerged in the past decade is faith-based investing, which seeks to avoid investing in businesses that operate contrary to defined religious values. For example, Biblically Responsible Investing is a type of faith-based investing that seeks to avoid companies whose activities are incompatible with Judeo-Christian values, such as companies that profit from pornography or abortion.
What’s important to you?
Because there is such a broad variety of socially-responsible and faith-based investment choices available, each with its own set of defined values, it is important to first clearly understand your own values and determine which social issues are most important to you. Only then can you compare SRI programs to determine which, if any, might be right for you.
If you decide to use an SRI approach, some questions to ask include: How effective are the screening tools? What are the costs?
In the end, you should speak with a trusted financial adviser to help you evaluate the merits of each investment selection within the context of your overall financial strategy.
Loran Graham is a certified financial planner professional and member of the local Financial Planning Association chapter. Readers are invited to submit questions on financial planning to be answered in this space each Tuesday. Send questions to askaplanner@ spokesman.com.