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Mutual Funds And Socially Responsible Investing
By Bernz Jayma P.
If you're an investor who is concerned about the impact of corporations on the environment and society, then socially responsible (SRI) is a growing sector where you will find securities that fit with your philosophy. SRI is a recognized focus within the investment community.
Socially responsible investments are analyzed on a global scale. The SRI agenda is to promote a set of values which are considered to be ethical and "Earth friendly" by in companies which exhibit these values in their corporate structure, in the workplace, in their labor practices, in their concern for the environment, and in their impact on the community (including respect for the rights of native peoples). SRI intentionally excludes certain business sectors which are deemed to be unhealthy for the planet, such as weapons, tobacco and gambling.
Although socially responsible originally started a few decades ago with the religious agenda to avoid companies which promoted addictive behaviors (like alcohol, tobacco, and gambling), it evolved in the 1970s to include social and ecological agendas as well. Today the social and ecological issues are at the forefront of socially responsible investing.
Mutual funds which specialize in SRI usually focus on a particular
agenda, and will only hold shares in companies that are in keeping with the SRI values. For instance, some funds will only buy stocks in companies that manufacture and promote green energy products. Other funds will only buy stocks in companies which practice fair trade. Still others will actively avoid stocks in any corporations which are involved in the manufacture or sale of weapons, munitions or military products.
Fund managers screen prospective companies for their socially responsible practices in addition to their profitability. Once those criteria are met, the fund manager makes decisions about the characteristics of the securities that will be included. At this point, the SRI mutual fund begins to look like any other mutual fund. The fund manager decides on small cap or large cap stocks, whether to invest exclusively in domestic companies or to go global, whether the investment goal will be for growth or income.
As for profitability, socially responsible mutual funds are comparable to other traditional mutual funds. When you stop to think about it, this makes perfect sense. In SRI fund manager is not more lenient in her criteria for selecting good investments. She's just applying an additional filter when selecting the stocks of profitable and sound companies.
Author and entrepreneur Bernz Jayma P. is the owner of a financial blog dedicated to helping people expand their knowledge on personal finance. You may visit his blog at www.Invesmint.com.
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