A Guide to Socially Responsible Investing
Socially Responsible Investing ("SRI") reversed, not only to maximize investor return, but to promote social good in the process.
INTRODUCTION
As a former financial adviser for a large broker dealer, I specialized in financial planning for nonprofit organizations that wanted to invest in investment products that reflect their social values.
To my surprise, my company had very little information available on socially responsible investing and the only piece of literature was a list of 25-30 companies mutual fund that had one or more products under the larger umbrella of "investing socially responsible "without any other information.
It soon became clear to me that the amount of information available there was limited. There seems to be a mistake (and is a persistent one) that you leave investment performance by investing in SRI, when actually the opposite is true. Typically, companies whose corporate policies support equality, environment and sound management practices, perform better financially as well.
As soon as this truth is widely recognized, larger institutions will begin to allocate more time, money and energy to increase research and create more SRI SRI products.
A BRIEF HISTORY
Socially responsible investing got its start in the 1700 mid / late in the slave trade as investors were encouraged to not take part in practice and was later associated with religious institutions who recommended investors avoid companies "sinful" that produced guns, the liquor or snuff.
In the 1960 Socially responsible investing has evolved to take larger social concerns of women's equality, civil rights and equal work, and in 1970 added social issues and global environmental concerns, such as apartheid in South Africa.
Since the 1990 SRI has increasingly embraced the wider arena of positive investments in the environment, social justice and corporate governance (commonly referred to as "ESG", although SRI will use the label because it is still the term most widely recognized at this writing).
TRENDS
According to a recent study published by the Social Investment Forum, SRI continues to grow at a healthy pace. In the beginning of 2010, SRI benefits totaled more than $ 3 trillion, which was an increase of more than 380 percent of $ 639 billion in 1995, the date of the first report published by Social Investment Forum meets these statistics.
Since 2005, SRI benefits have increased 34% while traditionally handled benefits have increased only 3%. And from 2007 to early 2010 (during the recession), the increase in professionally managed traditional benefits was less than 1% compared to a 13% increase in benefits of SRI. Today is about 1 in every $ 8 invested in some form of socially responsible investment.
The Social Investment Forum attributed most of this growth in customer demand and less legislation and regulation.
INVESTMENT STRATEGY
There are essentially three SRI investment strategies:
Research positive / negative:
The positive research involves actively seeking companies that do good. Allows an investor to select companies whose corporate practices are aligned with their values. For example, if an investor is concerned especially about protecting the environment, they might choose to invest in a solar energy company.
Many people think that investing in companies that promote social and environmental causes means you have to sacrifice performance but actually the opposite is true. Marc J. Lane, author of Profitable Socially Responsible Investing found that companies that bordered the highest for social and environmental issues actually performed better financially. In fact, according to Lane, the shares of those companies outperformed the Russell 3000 Index by over 2.5% over the course of eight year study conducted.
Negative research is just what the company name suggests, eliminates corporate whose practices or products or services are not aligned with social good. For most SRI investors traditionally included this snuff, guns, alcohol, gambling and defense contractors. But it has also been expanded to include companies whose management has failed to promote equal employment, diversity or environmental or corporate responsibility.
Sharholder Activism
Shareholder activism involves trying to influence change in corporate policies or practices by speaking directly to management or filing shareholder resolutions are then voted on by shareholders of the company. When the idea of shareholder activism was first introduced, the number of resolutions filed by shareholders was less than 20 annually. From 2008 to 2010, the Social Investment Forum reports that over 200 institutions filed shareholder proposals and many of the proposals are adopted.
The community invests
Community Investing involves direct investment capital to underserved communities members deposit / loan neighborhood (also called collectively, "Financial Institutions Community Development" or "CDFIs"). These lenders provide access to credit, equity and capital that these individuals or businesses would not otherwise have access to whether to apply for loans from traditional commercial banks. The investing community can also be achieved by venture capital financing.
Investing directly in a community, an investor is more likely to have a larger impact on social good. By buying shares of companies may or may not promote social good, the money invested in a CDFI or venture capital fund is put to work straight away and repair promote underserved communities.
SRI PRODUCTS: TRENDS
The MUTUAL FUND COMPANY AND EXCHANGE-TRADE FUNDS ("ETFs")
There are now more than 250 mutual funds that are specifically designed to align investments with certain social values. Some companies are mutual fund focused exclusively on SRI, such as Calvert, Domini, World Peace, Ariel, the Sentinel, Winslow, among others, while more conventional companies mutual fund like Vanguard, as Neuberger Berman, as Gabelli, as Legg Mason, as Dreyfus, to name a few, have one or more investment products that address certain social concerns, but SRI is not their primary focus.
While mutual funds provide a valuable way to invest in a diverse group of companies that represent specific social values, they have certain limitations you should consider before investing.
First, mutual funds generally tend to be expensive. Many companies in the mutual fund progressive charge fees in addition to fees to buy or sell stocks.
Second, the mutual funds are a passive way of investing in SRI with no control over carrier selection. If you take a closer look at some of the properties of the companies mutual fund that profess to invest in socially responsible companies, you may be surprised to find companies that really is not aligned with values of SRI.
Finally, many mutual funds just can not beat a simple and consistent product that tracks an index such as exchange-traded funds (ETFs). One of the first SRI index, the FTSE 400 KLD began in 1990, have continued to perform competitively, with returns of 9.51% of the principle by December 31, 2009, compared to 8.66% for the S & P 500 on the same period. For a fraction of the cost of investing in a mutual fund, you can simply buy shares of an ETF that tracks the KLD FTSE 400 and does just as well if not better.
There are now about 26 ETFs to choose from and even though they only justify about 1 percent of the total benefits invested in SRI, its advantages have grown 225% since 2007, the fastest recorded investment product.
Actions and link
Perhaps a more direct way to invest in socially responsible investing directly in stocks or bonds of solid, financially-sound companies that appeal to their values.
There is a misconception that when you invest in individual company stocks increases your risk because it reduces the number of companies you invest in, concentrating risk to investments. This is only true if you do your research and invest in companies that are financially, socially and ethically sound.
To begin your search, several publications released annual lists of the leading SRI. If you simply do not have time or want to do research, ETFs are a great option and can be paid to New Wealth Paradigm bimonthly newsletter provides investment ideas, trends and notable companies to watch.
ALTERNATIVE INVESTMENTS
Alternative investments include hedge fund, venture capital funds, private equity funds, property funds and other unregistered limited partnerships or limited liability companies which are typically available only to accredited investors and high net worth. That is, they are investments that generally have high initial requirement minimum investment of $ 50,000 or more that is only available to a wealthy few.
These are not necessarily for everyone but unlike mutual funds, hedge fund managers who used to have the flexibility to buy and sell using investment techniques and strategies that are generally unavailable or even prohibited by companies to mutual fund Because of regulatory constraints.
The greatest flexibility usually translates to a better ability to adjust to different market conditions and the potential for higher returns.
This area of SRI has exploded since 2008 with 610% increase in managed benefits rose a growing interest in clean energy and renewable technology.
COMMUNITY INVESTING: Financial Institutions Community Development ("CDFIs")
Development Financial Institutions of the community are made of: the banks of the development of community credit unions in community development funds, community development loan and venture capital funds for community development. Each of these is a different type of lender that makes capital available to individuals or small businesses in underserved communities.
The benefits of investing in community institutions have risen more than 60% since 2007.
Today, many of these institutions reach their targeted customers online. The Kiva.org is one such organization which specializes in providing micro loans to entrepreneurs in regions revealing. The rate of return is 98.99% and interest rates vary but are more competitive than a bank savings value.
GLOBAL TRENDS
There are several global trends in 2011 to help stretch your travel investment in the area of SRI and the positive outlook for the global business cycle (out of a global recession), demographic changes (population growth booming elderly population in Asia and U.S.) new technology, climate change, among other things, that all play a factor in determining where money flows.
Specifically, green investments related to clean technology and renewable energy is one of the most dominant in 2011 driving increased investment in particular SRI SRI and alternative investments (ie hedge fund, private placements).
Ready to make choices about where to put your money, is a good idea to step back a different investment vehicles available and take a look at the big picture. What changes lead investments in the sector, and specifically, companies are more likely to perform well in space socially responsible?
WHERE TO FROM HERE?
For posts weekly and bi-monthly newsletter, New Wealth Paradigm indicate investors expect SRI options that make sense at this time. In our web site, I have listed several resources that provide guidance to make wise investment choices as a socially responsible investor.
Now is the time to align their values with investment choices that are consistent with what you believe in, what you are interested in, what matters most to you.
Hope to see you on the journey!
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