Socially Responsible Investing (SRI)
Socially responsible investing is the integration of environmental, governance and social criteria into the traditional investment decision making process. Whether large institutions or individuals, social investors believe in using economic and market levers to encourage corporate responsibility and positive social change. Social investment allows large institutions and individuals alike to make investments that are consistent with both their social and financial goals.
Socially responsible investing (SRI) spans a wide and growing range of products and investments, from stocks and bonds, to venture capital. Like all investors, socially responsible investors seek a competitive financial return on their investments, and the good news is that it is possible to consistently achieve this.
Economic Studies Confirm that SRI Outperforms NON-SRI
A growing number of academic studies have demonstrated that SRI mutual funds perform competitively with non-SRI funds over time. Several of these peer-reviewed and published studies have been awarded the prestigious Moskowitz Prize.
Additionally, more than 20 studies demonstrating that SRI mutual fund performance is comparable to that of non-SRI funds can be found at www.sristudies.org — a compendium of all the major academic studies on SRI.
Another indication of the competitive performance of SRI funds is the performance of SRI indexes. These indexes are designed to be benchmarked to non-SRI indexes, such as the S&P 500. The longest-running SRI index, the Domini 400, was started in 1990. Since that time, it has continued to perform competitively — the S&P 500 with 10.33% total returns, versus the 10.83% return of the Domini 400.
Rapid Growth of SRI
The rapid growth of SRI in recent years is the best evidence that socially responsible investing yields competitive returns. Over the past 20 years, the total dollars invested in SRI has grown exponentially, as has the number of institutional, professional, and individual investors involved in the field. Between 1995 and 2007, total dollars under professional management in SRI grew from $639 billion to $2.71 trillion, outpacing the overall market. SRI investing has become part of the mainstream, and as a result, a number of conventional companies now offer SRI products to their clients.
The bottom line is that more and more investors adopt and use SRI strategies not only because such investments allow a focus beyond the bottom line, but also because returns are comparable to those of more conventional investments.
Ample evidence of the competitiveness of SRI is also found in the increasing investment in SRI by state pension funds, university endowments, and foundations. These fiduciaries are obligated by law to seek competitive returns for the portfolios they manage.
The fact that a growing number of major U.S. fiduciaries are either screening their portfolios, engaging in shareholder advocacy, or directing assets to community investing, demonstrates that these three SRI strategies do not impede financial returns.