Socially Responsible Investing (SRI) in a Global Economy

Many of us have heard the phrase "do well and do good" but what exactly does that mean? In today's world it means socially responsible investing or SRI.

The idea of socially responsible investing or the marriage of morals and money is certainly not a new idea. Investors from different faiths and cultures have long histories of giving careful consideration to investments, how they affected others and if they were in keeping with their beliefs. For example, Quakers in early America often avoided "sin" stocks, those that involved alcohol, tobacco or gambling.

The ideals of early investors were difficult to maintain as rapid changes gave way to a complex global economy. However, the increasing resources available for socially responsible investing are allowing investors to keep their core values while keeping up with the Joneses.

Let's face it, if we each had a nickel for every mile of pipeline Haliburton laid we'd all be sitting pretty. But the root of our riches might keep some of us up at night. Enter socially responsible investments. Socially responsible investing allows individuals to make investment decisions that are aligned with personal values. These can range from environmental issues to worldwide economic equity.

A good example of socially responsible investing at work is the Grameen Bank started by Professor Muhammad Yunus from Bangladesh. The bank's extension of very small loans to the poor, mostly women, allowed them to set up businesses and transform their lives. The Nobel Prize recently recognized Yunus and the bank with a peace prize for their work in providing micro-credit to entrepreneurs.

Like Grameen Bank, thousands of socially responsible investment opportunities are available worldwide for those who wish to use their savings and investment decisions to help create a better world. Both the investor's financial goals and the investment's impact on society are considered. Social investors are both individuals and institutions like universities, corporations, non-profit organizations and religious organizations.

What all of these investors have in common is that their investment portfolios are based on social or environmental criteria. Socially responsible investors consider a company's employee/labor relations, community impact, environmental impact, human rights practices, production methods and end products.

For example, the Ariel Fund is a socially responsible mutual fund that invests in small to mid cap stocks. The fund screens out corporations that derive their revenue from production or sale of tobacco, from the manufacture of handguns or from nuclear energy production. Since its inception, the fund has proven a 13.5% return on investment.

Ariel's management is based on the belief that the industries avoided through their screening criteria are more likely to be poor investments due to increasing litigation and legal costs associated with them. So the Ariel Fund serves both a socially ethical purpose as well as a financially rewarding objective. Ariel is just one of hundreds of Mutual Fund companies that apply principles of socially responsible investing.

Mutual funds aren't the only way to invest socially responsible ideals. Community Development Banks and Credit Unions (CDB or CDCU) offer federally insured traditional banking products to deposit customers while serving underrepresented communities. Checking and savings accounts at CDB's or CDCU's help fund basic financial services and loan products to underserved community members. In addition to checking and savings accounts, certificates of deposit (CD), individual retirement accounts (IRA) and money market accounts held at a CDB or CDCU allow these institutions to help communities.

Community Development Loan Funds (CDLF) are socially responsible investments that serve the credit needs of disadvantaged communities. These funds are usually private, non-profit, institutions that provide low-cost financing for community projects, housing and small businesses. International Community Development Funds are similar except community development is focused abroad using U.S. based funds.

Another socially responsible investment option is Community Development Venture Capital (CDVC) funds. These funds concentrate on businesses that create jobs, increase entrepreneurial endeavors and work to benefit low-income and distressed communities. CDVC funds focus on specific geographic areas typically avoided by traditional venture capital funds such as Appalachia, Cleveland and St. Louis. CDVC funds are offered by for-profit corporations, non-profit organizations, limited partnerships and limited liability companies.

Community Development Bond Funds support community development in low to moderate income communities. These funds are invested in asset-backed securities like mortgages are similar to mutual fund investments. Often, these funds find return from deposits at community development banks, a financially conservative socially responsible investment strategy.

Mainstream money managers are increasingly using socially responsible investment factors in their strategies and $2.29 trillion assets are under SRI management. A 2006 report from the Social Investment Forum showed a 258% rise in socially responsible investment assets since 1995. Today 1 of every 10 dollars under professional management in the United States is invested with social and environmental issues as considerations. Socially responsible investing is widely gaining a faithful financial following and the strategies are paying off. The question now is where will your next investment dollar go?