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What is SRI? An Intro to Socially Responsible Investing

Last updated by on 11 Comments

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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About the Author
I am G.E. Miller, & this is my story. My goal is financial independence ASAP. If you share that goal, join me & 7,500+ others by getting FREE email updates. You'll also find every post by category & every post in order.


11 Comments »
  • Bichon Frise says:

    There goes index investing! What’s a person to do? Hand pick every single stock that goes into their portfolio?! What about Government treasuries? They reap royalties from oil companies and mining companies. So, do we forget about those? Or do we look the other way?

    Even the fund you point to, CSIEX, high fee (1.2%) and a high load (4.75%) aside, has Apple (chinese workers plunging to their death), Cameron (makes and supplies oil & gas equipment for drilling and production – BP just made a “strategic” change to Cameron and dropped FMC) and Suncor (canadian oil sands) in its top 5 holdings. Not to mention, BEFORE you take out fees, it has performed the same as the S&P 500 over the last 10 years.

    How is that socially responsible? Realizing you will probably say SRI is relative and for everyone to make a pilgrimage to Nepal (in a sailboat nonetheless) to figure it out for themselves, CSIEX specifically violates some of the specific things you say is not SRI (“by screening out oil, coal, gas, and other fossil fuels”).

    • G.E. Miller says:

      Bichon, when you walk into a room of crowded people, do you hear a trombone “waaah, waaah” noise in the background? Despite adding nothing positive in your comment, I’ll embellish your negativity on this one…

      I don’t disagree with anything you’ve said – CSIEX (which I did not recommend) charges way too high of a fee for my blood, and many SRI funds have questionable screening techniques at best. I would rival and trump your disdain for Apple’s business practices (remember my Steve Jobs rant?).

      That being said, you would seemingly have folks dismiss SRI completely because some fund managers have questionable selection criteria. You’re painting a broad brush that sells the industry as a whole and an individual investor’s ability to research short.

      For those who don’t invest at all because of ethical concerns (I’m not one of them, but they are out there), isn’t some level of SRI a better alternative than hiding your $ under a mattress or plunging all of your money into oil stocks? Or even a broad index which has no negative screening at all? SRI is geared towards those folks, and they are out there.

      It is up to the individual to explore the specifics, this post was just a primer.

      Now that you’ve completely dismissed the SRI concept, how would you suggest that folks with ethical investing concerns address their concerns? (this is your chance to shine….)

      • Bichon Frise says:

        waaaaaaaahhhhh, waaaaaahhhhhhh

        I am not the one pitching “Socially Responsible Investing.” Since the one “SRI” fund that you mention isn’t a recommendation, perhaps you should make an offering of SRI funds/investments you do recommend. Certainly, there is nothing wrong with morals and standards for one’s investing strategy. But, is it fair to suggest that those who don’t share your morals and standards are “unethical” or “socially irresponsible”?

        • G.E. Miller says:

          Chirp, Chirp! I thought Bichons were more in the yippy category

          I’m highlighting SRI, not pitching it. Have I suggested anyone is unethical or socially irresponsible here? I haven’t even said that I practice SRI, so I’m certainly not judging others for not.

          I smell oil… Do you happen to bathe in petroleum jelly? Employed by Exxon, perhaps?

          • Bichon Frise says:

            waaaahhhhh, waaaahhhhh, yap, yap!

            I only wish I could ride the wave of big oil…alas it ’tis not in the cards.

            Does your crotch ever hurt from straddling the fence so much?

  • Melissa H. says:

    G.E., thank you so much for this post! As I recently started a high paying job, I’ve been interested in investing in SRI mutual funds but had forgotten my high school knowledge of how they work and how to go about finding them.

    Although I could easily Google search this myself, do you happen to know of any SRI mutual funds that you could recommend? If you don’t feel comfortable with that, another question: how do you feel about companies like Kickstarter which, I believe, take your investment capital and (if successful) use it to start interesting businesses and pay you back that way? I would think that’s another way to support businesses and ideas you care about, with the potential for a very big reward.

    • G.E. Miller says:

      Hey Melissa! I don’t give specific investment recommendations, but I do think that a post that highlights different options out there and where to start and screen might be of interest to people, so stay tuned for something along those lines.

      I know just enough about Kickstarter to like the idea, but haven’t studied up enough on it to know if it is a wise investment avenue.

      Does anyone out there have a strong Kickstarter background?

      • Melissa H. says:

        I would definitely appreciate an SRI ‘Where to Start’ guide… I’m only now seriously getting into saving and investing, and it’s so hard to know who to trust regarding investment advice! A primer would be very helpful :)

      • Bichon Frise says:

        wwwaaaahhhhhh, waaaaahhhhhh, yap, yap!

        Kickstarter is unregulated by the SEC. Therefore, kickstarter cannot allow a person to make an “investment” with the intent to or actually return any money. That is why you see the promise to return a video of the trip to some 3rd world country you are funding. or a new t-shirt. But, in my typical bearish attitude, how can you be sure they will even be able to return the promised souvenir to you? If you can’t scrounge up $5k to go on your trip, it says a lot about your money mgmt skills, so why should I trust you with my money?

        It’s interesting, kickstarter is a lot of things, but a place to grow money is not one of them.

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