When it comes to investing, most investors primary concern is making money. Next to that comes managing risk. Then a whole myriad of thoughts can come to mind. One of the fastest growing concerns in the investment arena is the area of investing with social responsibility. In fact, according to a poll by the Ideation Group, 53% of Canadians are interested in ethical driven mutual funds. In the US, nearly 1 out of every 8 professionally managed dollars is now involved in social investing.
What is SRI?
Socially Responsible Investing, or SRI, is the process of incorporating screens on ethical, social, moral or environmental concerns in the selection and management of investments. According to the Social Investment Organization (SIO), a national non-profit organization dedicated to the advancement of socially responsible investing in Canada; there are three basic approaches:
- Positive and negative screening – the application of social and environmental guidelines or “screens” to the investment process.
- Community Investment – the investment of money into community development or micro-enterprise initiatives that contribute to the growth and well being of particular communities.
- Shareholder advocacy – using shareholder influence to help bring about positive social environmental change at corporations.
Some of the most common social and environmental concerns include: charitable contributions, community involvement, corruption, environmental concerns, human rights, labour issues, military weapons, minority groups, nuclear power, safety concerns and women’s rights. If these issues are of significant concern to you, then you may want to consider socially responsible investing.
Ethical investing and mutual funds
According to Real Assets, the first full-service investment management firm in Canada to focus entirely on Social Investing, the first socially screened fund in Canada was the Ethical Growth fund in 1986. Ten years later, there were 14 socially screened funds with total assets of almost $2 billion. Today, that list has more than doubled and continues to grow.
Here is a list of some of the companies that offer socially responsible funds: Acuity Funds, Desjardin Funds, Ethical Funds, Meritas Funds, Generations Ethical Funds, Great-West Life, Investors Group, Mackenzie Financial, and Strategic Nova.
In addition to mutual funds, there are specific indices used to measure social investing. In the US, the Domini Social Index (DSI) is an index of 400 socially responsible companies. The 10 biggest companies in this index are Coca-Cola, Cisco Systems, SBC Communications Inc., Verizon Communications, Merck & Co., Johnson & Johnson, Intel Corporation, American International Group, AOL, Time Warner, and Microsoft Corporation.
In Canada, we have the Jantzi Social Index created by Michael Jantzi Research Associates. The Jantzi Social Index has 60 companies selected on social responsibility criteria. Some of the Canadian companies include Royal Bank of Canada, BCE Inc., Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, CIBC, Sun Life Financial Services of Canada, Alcan Aluminum, Canadian National Railway Company, Suncor Energy Inc.
Social investing and performance
Some of the organizations representing socially responsible investing claim that there have been specific periods of out-performance compared to mainstream indices. While it is true that there are periods of out-performance, there are also many periods of under-performance. According to our work, there is no reason to support that socially responsible investing has better or worse performance than what I will call mainstream investing on a consistent basis. Research papers support that performance is attributed to investment factors such as sectors, industries, geography and capitalization as opposed to social and environmental factors.
My two cents
With all that is happening in our world today, there is increasing interest in the area of socially responsible investing. Yet, every investor I have met his or her primary motivation is to make money. In the limited work I have done in this area, I have not found a lot of proof that there is any correlation, either positive or negative, that socially responsible investing leads to better performance. We all have some level of responsibility to the environment and social contribution. Ethical investing may be one way for you to contribute.
There are a number of funds to consider if you are looking to invest responsibly. One of the considerations is to ensure that they are part of the Social Investment Organization.