Understanding Socially Responsible Investing

Stock quotes in this article: XOM  

Recently I gave a lecture at Seton Hall University entitled, "Is Socially Responsible Investing Investing Responsibly?" Here are the highlights, along with my take on socially responsible investing.

But first, what is socially responsible investing (or SRI)?

SRI is commonly known as an approach to investing that focuses on businesses that can deliver both a good financial rate of return and a return for the "greater good." Calvert, a mutual fund company that specializes in SRI, defines SRI as "an investment strategy that integrates social or environmental criteria into financial analysis."

Some (but not all) social responsible investors avoid businesses involved in "destructive" products such as alcohol, tobacco, gambling and weapons. Meanwhile, others who subscribe to SRI will proactively attempt to modify corporate behavior to conform to more "responsible" standards. For example, in Exxon Mobil's (XOM Quote) most recent proxy statement, several shareholder proposals concerning environmental issues were submitted to all XOM shareholders for consideration. (They were all voted down.)

The opposite of SRI is often called "sin" investing. Sin investors focus on investing in businesses behind such activities as drinking (alcohol), smoking and gambling -- to name a few.

So is SRI investing responsibly, and is there nothing redeeming about sin investing?

The answer is really a matter of perspective. Let me give you the example I posed to my audience at Seton Hall.

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