Your Money Matters

June 2012 Issue



Socially Responsible Investing – An Overview

Socially responsible investing (SRI) is often referred to as a holistic approach to investing because it looks at financial, social, environmental and ethical criteria in choosing investments. An increasingly hot topic these days, it is by no means a black and white issue.

Advocates of SRI believe that it is quickly moving into the mainstream and that the corporate “bottom line” is about to get a whole lot bigger. By this, they mean that companies will not only have to ensure they are doing well financially, but in order to remain competitive in the marketplace, and please their shareholders (who are becoming more and more concerned about what kinds of companies they invest in), they will be forced to look at the impacts of their actions on the environment and the communities in which they operate.

Opponents of SRI, on the other hand, claim that it restricts an investor’s portfolio mix by limiting his or her investment choices and is, therefore, more risky as a result. The screening processes that fund companies use to select socially responsible investments are often criticized as well.

Because people have very different sets of beliefs, SRI fund managers must choose the right set of stocks to attract the greatest number of investors. To do this, each fund uses a set of “screens” or selection criteria. One fund might base its screens mainly on environmental aspects, while another might focus on human rights.

There are four methods of Social Investing: Negative screening which chooses not to invest in companies that act “unethically” or irresponsibly, positive screening which chooses to invest in companies that do something to stop human rights abuses, help the environment, support the community, etc, community investment which chooses to invest money in community development or micro-enterprise initiatives that contribute to the growth and well-being of specific communities, and shareholder advocacy “an important aspect of SRI” which focuses on the ability of investors to influence change through their shares in a company. Because corporations use a “one-share-one-vote” principle, each shareholder can have their say. They can write letters to management, attend the company’s annual general meeting, vote and introduce shareholder resolutions.

Don’t let your emotions be your only source of investment advice. Not all companies that “do good” are smart financial investments. Being a responsible investor means considering all the criteria – not just the social indicators but the financial ones as well (including fees). Always do your homework before making any new investment decisions. Be true to your own values and beliefs. What’s important to you might not be important to your neighbor. Identify your top concerns and choose the fund that most closely matches your own value system. Don’t put all your eggs in one basket. With SRI, you may find your investments have too much in common socially, ethically and financially. Be vigilant about diversifying your portfolio. There are many ways to invest in socially responsible companies while minimizing risk.

If you or someone you know would like to get more information on this subject and which funds are available to invest in, please contact us. We would be happy to send you some information or set up an appointment to discuss in greater detail.

Theresa Wever and the Money Concepts Team

Commissions, trailing commissions, management fee and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.