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) 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.
A Viable AlternativeLet me propose a potential solution for individuals who desire to promote socially responsible behavior or financially support a better world. Rather than invest in socially responsible companies, I suggest investing without restriction in order to maximize your returns. Then donate your investment gains to organizations that promote the cause or causes of your choice. For example, use your investment income to donate to behavioral treatment programs, cancer research or alternative energy.
Your HomeworkIf you want to give back to society or the environment through investing consider one of the following approaches:
- Invest in a SRI fund. Seek out the fund with the best track record and management team.
- Create a charitable trust that will earmark investment income to benefit a socially responsible cause. My wife and I have such a trust. If you're interested in taking this route, you may want to refer to the Planned Giving Design Center at pgdc.com.