What is SRI? An Intro to Socially Responsible Investing




We recently discussed how impact reduction has a direct correlation to personal wealth.

The discussion prompted reader, Bill, to write in with a great question,

“I assume that you invest a lot of that savings, but isn’t an investment in a company essentially just a vote of confidence that they will continue to produce products or services and continue to be profitable doing so? The money you earn isn’t going anywhere unless you burn it, so won’t it all just be turned back into stuff eventually one way or another?”

My response to Bill was:

“Great question with a complicated answer that I could literally write for hours about, so I’ll try to keep it simple:
1. I am not against business or capitalism. My environmental stance does not = no investing, because:
2. There are a lot of businesses that do things ethically and/or make the world a better place. You WON’T find me investing in BP, but you might find me investing in solar.
3. There’s also something to be said for me to invest, grow my wealth, so that I may donate it or reapply myself in areas where I am making the world a better place.

I think socially responsible investing (SRI) is a great thing. You may have just prompted an entire post…”

Here is that post!

What is Social Responsible Investing?

socially responsible investingThe sentiment raised by Bill has prompted an entire category of investment focus called socially responsible investing, or SRI.




While it may be tempting for those with an environmental, social, political, or other aversion to investing to dig a hole in the ground and bury their cash, to do so over the long run would be suicide.

A fear of investing can lead to an erosion of your cash value as inflation eats at your savings over time.

You HAVE to invest in order to grow your net worth and reach and maintain any sort of financial independence.

So how do you ensure your financial future through investing while at the same time not wanting to jump off a ledge out of self-conscious guilt for contributing to the destruction of the entire world from capatalistic greed? Socially responsible investing.

The Origins of Socially Responsible Investing

The first counts of socially responsible investing dates back to religious influences in the 1700’s. The Religious Society of Friends (the Quakers) prohibited members from participating in the slave trade.

One of the first written accounts comes from Methodist founder John Wesley (1703–1791), as he gave a sermon on “The Use of Money” where he outlined his basic tenets of social investing such as not harming your neighbor through your business practices and to avoid industries like tanning and chemical production.

Later, religious leaders encouraged members to avoid sinful companies, such as those that produced products like firearms, alcohol, and tobacco.

Social investing then made a move to political territory with the use of labor union pension funds and even helping to end apartheid in South Africa.

SRI Today

Socially responsible investing today still has a focus on avoiding firearms, alcohol, gambling, defense industry, and tobacco, but there is an increasingly larger focus on human rights issues and community investing (putting money into under-served communities as an investment strategy) as well.

You can buy SRI focused mutual funds, index funds, ETF’s, or even implement your own socially responsible investment strategy.

SRI has been turned to by many for its focus on environmental issues as global warming and other environmental threats compound with economic growth. Institutional and individual investors have been doing this in a number of ways:

  • by screening out oil, coal, gas, and other fossil fuels
  • by screening out companies that don’t have a strong environmental track record
  • by favoring companies that use more alternative and renewable energy versus their peers
  • by favoring companies that manufacture alternative and renewable energy solutions

Not Just for Charity

Whatever the purpose, SRI has become EXTREMELY big business. According to the Forum for Sustainable and Responsible Investment, $3.07 trillion out of $25.2 trillion in the U.S. Assets are growing much faster than non-SRI focused assets.

According to Kiplinger Magazine, there are now 493 mutual funds with assets of $569 billion versus 55 funds and $12 billion in assets 20 years ago.

When I first learned about socially responsible investing 8 or so years ago, the performance was not there versus the broader market. Today, however, that’s no longer the case. It is possible to have a social investing conscious without having to pay a tax or fee in the form of poor performance. For example, one of the SRI giants, the Calvert Equity Fund (CSIEX), has gained 6.9% annually over the past 15 years, vs. 5.5% for the S&P.

It is quite possible to build for your future while not hating yourself, after all.

On the flip side, SRI is not the only way to do this. Every time you make a purchase or give a company money, you are directly influencing their business. As a consumer, you wield a lot of power (i.e. don’t like big oil or gas guzzlers, switch to a more fuel efficient car or bike).

Others make the argument that you should invest where you get the highest return on investment and then use your proceeds in responsible ways to have an even bigger impact.

Why not practice all three?

SRI Discussion:

  • Have you invested in socially responsible investment strategies yet? Why or why not?
  • Have you avoided investing altogether for ethical reasons?
  • If you are using SRI, what have you invested in?

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11 Comments

  1. Bichon Frise
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  2. Melissa H.
      • Melissa H.
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