Socially responsible investing
In general, socially responsible investors encourage corporate practices that they believe promote environmental stewardship, consumer protection, human rights, and racial or gender diversity.
Some SRIs avoid investing in businesses perceived to have negative social effects such as alcohol, tobacco, fast food, gambling, pornography, weapons, fossil fuel production or the military.
[1] During this time, socially concerned investors increasingly sought to address equality for women, civil rights, and labor issues.
[10][11] An iconomic image from the era was a picture in June 1972 of a naked nine-year-old girl, Phan Thị Kim Phúc, screaming and running towards a photographer, her back burning from the napalm dropped on her village.
By 1980, presidential candidates Jimmy Carter, Ronald Reagan and Jerry Brown advocated some type of social orientation for pension investments.
Due to these reports and mounting political pressure, cities, states, colleges, faith-based groups and pension funds throughout the US began divesting from companies operating in South Africa.
The subsequent negative flow of investment eventually forced a group of businesses, representing 75% of South African employers, to draft a charter calling for an end to apartheid.
While the SRI efforts alone did not bring an end to apartheid, it did focus persuasive international pressure on the South African business community.
More recently, some social investors have sought to address the rights of indigenous peoples around the world who are affected by the business practices of various companies.
Healthy working conditions, fair wages, product safety, and equal opportunity employment also remain headline concerns for many social investors.
[19] In the mid-2010s, some funds developed gender lens investing strategies to promote workplace equity and general welfare of women and girls.
[21] Government-controlled funds such as pension funds are often very large players in the investment field, and are being pressured by the citizenry and by activist groups to adopt investment policies which encourage ethical corporate behavior, respect the rights of workers, consider environmental concerns, and avoid violations of human rights.
One outstanding endorsement of such policies is The Government Pension Fund of Norway, which is mandated to avoid "investments which constitute an unacceptable risk that the Fund may contribute to unethical acts or omissions, such as violations of fundamental humanitarian principles, serious violations of human rights, gross corruption or severe environmental damages".
Unlike the Employee Retirement Income Security Act of 1974 (ERISA), which severely limits the extent to which socially responsible goals can be considered in managing corporate and Taft-Hartley pension assets (due to ERISA's overriding goal of protecting employees' pensions),[26] registered investment companies can take these factors into account so long as the disclosure and other requirements of the Investment Company Act of 1940 are met.
Where a separate account is subject to ERISA, there are legal limitations on the extent to which investment decisions can be based on factors other than maximizing plan participants' economic returns.
The community investing institution typically provides training and other types of support and expertise to ensure the success of the loan and its returns for investors.
[38] After several years of growth, the rating agency industry has recently been subject to a consolidation phase that has reduced the number of genesis through mergers and acquisitions.
According to the non-profit Investor Responsibility Research Center institute (IRRCi), approaches to ESG integration vary greatly among asset managers depending on:[40] Negative screening excludes certain securities from investment consideration based on social or environmental criteria.
Recently, CalSTRS (California State Teachers' Retirement System) announced the removal of more than $237 million in tobacco holdings from its investment portfolio after six months of financial analysis and deliberations.
These activities are undertaken with the belief that social investors, working cooperatively, can steer management on a course that will improve financial performance over time and enhance the well-being of the stockholders, customers, employees, vendors, and communities.
This evidence suggests that ESG considerations can lead to improved risk management, cost savings, and access to capital, thus enhancing overall financial health.
This approach includes investments in areas such as renewable energy (e.g., solar and wind power projects), affordable housing developments, education technology startups, healthcare innovations, and sustainable agriculture initiatives.
This investment approach allows investors to positively express their values on corporate behavior issues such as social justice and the environment through stock selection – without sacrificing portfolio diversification or long-term performance.
Impacting investing has its roots in the venture capital community, and an investor will often take active role mentoring or leading the growth of the company or start-up.
The 2018 report shows that globally, sustainable investing assets in the five major markets stood at US$30.7 trillion at the start of 2018, a 34% increase in two years.
For consumers using RIAA's Responsible Returns search and compare tool for ethical investments, the most important exclusionary screens are fossil fuels, human rights abuses and armaments.
Increasingly, responsible investors in New Zealand have shifted their focus from screening out harmful industries such as tobacco and armaments, to considering broader environmental, social and corporate governance (ESG) factors when investing.
In 1985, Friends Provident launched the first ethically screened investment fund with criteria which excluded tobacco, arms, alcohol and oppressive regimes.
Several studies have found that there is no conclusive evidence as to whether the performances of socially responsible investments outperform those of conventional and vice versa.
[84][85] The Sharpe ratio and the capital asset pricing model were used to estimate Jensen's alpha for the comparison and no significant difference was found in the performance of the two indices.
