Social Investing - Investment Fad or Way of the Future?

In the last few years, an innovative investment trend-social investing-has gained increasing popularity in the U.S. As a result, now many investors throughout the nation are wondering: What is social investing and what can it do for me? In the end, they are curious to know is social investing merely a trend-a novel idea that will vanish with the arrival of the next investment fad? Or is it a true and commendable philosophy that has the potential to change the face of American investing forever?

Essentially, the term social investing describes supplying funds to companies based upon the businesses' role in "some social purpose or objective" (Cayer, Martin, & Ifflander, 1986, p. 75). Examples of such purposes and objectives include what nations a corporation chooses to trade with or its activities to address unemployment among underprivileged areas (Cayer et al, 1986). Furthermore, "social investing attempts to penalize activities the investors wish to discourage and to support favorable activities (Cayer et al, 1986, p. 75). This approach to investing gained much popularity in the U.S. during the 1960s and 1970s, when Americans became increasingly concerned about rights violations. However, even then social investing was not a new concept. Rather, religious investors have been practicing social investing for centuries, refusing to invest in those businesses that offer products that intentionally cause harm to human life (i.e., weapons or alcohol) (Abbey, 2005; Cayer et al, 1986).

However, corporate America traditionally has opposed social investing and its call for businesses to evaluate the impact of their business practices beyond monetary gain and be socially responsible (Engardio, Capell, Carey & Hall, 2007; Gevlin, 2007). Essentially, "social responsibility is the complete actions of an organization in its attempts to balance commitments, expectations, stakeholder interests, and society's needs" (CTU Online, 2007, Question #7). An organization's social responsibility can often be seen through its business standards and practices, in addition to its mission and value statements (CTU Online, 2007). Even today corporate America is still flooded with negative sentiments about social responsibility and social investing. Many business leaders are still convinced that these trends are not nearly as successful as traditional business practices (Engardio, Capell, Carey & Hall, 2007; Gevlin, 2007).

On the other hand, countless others are beginning to recognize the potential benefits of being socially responsible. For example, there are two general reasons why companies choose to be socially responsible that may prove beneficial. First, research has shown that employees, shareholders, and even the general public view such organizations (and their CEOs) more favorably. This, in turn, tends to attract more hardworking and loyal employees, more steady and satisfied investors, and a more favorable overall reputation for the business. Secondly, now that so many leading corporations are choosing to be socially responsible, a company risks bad press for not following suit (Bernhut, 2002; CTU Online, 2007).

Being socially responsible can also be profitable to an organization in a business sense, although this cannot be easily measured in dollars. Logically, if a company has a good reputation, it is bound to keep its current customers and may even attract new business. Since being socially responsible costs money, though, it is sometimes difficult to gauge if such activities are beneficial in this manner (Bernhut, 2002; Engardio et al, 2007). In spite of this, business experts are beginning to suspect that a socially responsible company may have more stable stock since their behavior reduces the risk of suffering major shocks or their image lessens the blow (Bernhut, 2002, p. 19). Also, such social responsibility practices as encouraging sustainability[1] have been known to help reduce some of costs caused by such issues as environmental disasters and rights abuses. Finally, companies that are social responsible are more in step with the new concerns of society, so when new laws and regulations are passed, they can already or with a little effort comply with these standards (Engardio et al, 2007).

References:

Abbey, D. (2005, January/February). Responsible riches: Social investors put their money to work in communities and help to change the marketplace. Alternatives Journal, 31(1), 26-28. Retrieved August 10, 2008, from Colorado Technical University Online Library, Articles & Books, Academic Search Premier: https://ctuonline.edu

Bernhut, S. (2002, March/April). Leader's edge: Corporate social responsibility, with Pratima Bansal. Ivey Business Journal, 66(4), 18-19, 59. Retrieved August 10, 2008, from Colorado Technical University Online Library, Articles & Books, MasterFILE Premier: https://ctuonline.edu

Cayer, N. J., Martin, L. J., & Ifflander, A. J. (1986, Spring). Public pension plans and social investing. Public Personnel Management, 15(1), 75. Retrieved August 10, 2008, from Colorado Technical University Online Library, Articles & Books, CINAHL with Full Text: https://ctuonline.edu

Colorado Technical University Online. (2007). Phase 5 course materials. Retrieved July 8, 2008, from CTU Online, Virtual Campus, MGM110-0803A-12: Principles of Business: https://campus.ctuonline.edu

Engardio, P., Capell, K., Carey, J., & Hall, K. (2007, January 29). Cover story: Beyond the green corporation. Business Week. Retrieved August 10, 2008, from http://www.businessweek.com/magazine/content/07_05/b4019001.htm

Gevlin, K. (2007, December). A very convenient truth: New research shows SRI performance rivals that of conventional investments. Financial Planning, 37(12), 80-84. Retrieved August 10, 2008, from Colorado Technical University Online Library, Articles & Books, Business Source Elite: https://ctuonline.edu

[1] Sustainability refers to "meeting humanity's needs without harming future generations" (Engardio et al, 2007, para. 4).