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Socially responsible investing picks up through recession

By Sheyna Steiner ·
Wednesday, November 10, 2010
Posted: 2 pm ET

A new study has found that socially responsible investing, or SRI, continues to gain steam in the U.S. marketplace.

The Report on Socially Responsible Investing Trends in the United States from the Social Investment Forum found that SRI assets are up. Nearly $1 of every $8, or 12.2 percent of the $25.2 trillion in total assets under management, is involved in some strategy of socially responsible and sustainable investing.

In fact, SRI investments have attracted more new investments than the rest of the market over the past 3 years. Sustainable and socially responsible investing assets have grown more than 13 percent compared to the universe of professionally managed assets, which increased less than 1 percent.

Socially responsible investing is based on three tenets:

  1. Screening investments based on environmental, social or governance criteria.
  2. Shareholder advocacy.
  3. Community investing.

The screening component is pretty self-explanatory. Individual investors may screen their own investments based on their religious or political convictions in addition to environmental or governance issues. Socially responsible mutual funds work much the same way, screening out companies that either do not engage in the offending activity or are trying to improve. Or, the fund may simply restrict poor performers. The website has a great tools and resources section that shows comparisons on how funds are screened.

Much of the criticism of the socially responsible investing industry focuses on screening. For instance, if animal welfare is your concern, the socially responsible mutual fund industry may be disappointing: according to, very few mutual funds screen out companies that engage in animal testing.

Other criticisms are aimed at the inclusion of oil companies in SRI funds, restaurant chains that use factory farmed animals and so on.

It's not perfect, but it's a start.

Shareholder advocacy refers to shareholders filing resolutions as well as voting their proxies at shareholder meetings.

According to the report from the Social Investment Forum Foundation, shareholder advocacy has grown from 2008; more than 200 institutions and investment management firms have filed or cofiled shareholder resolutions and proposals.

Community investments are investments that go toward strengthening a certain community. For instance, the deposits from CDs bought at community development banks or credit unions go towards loans to businesses within the community. Similarly, community development loan funds and venture capital funds provide financing to local businesses and institutions trying to improve their community.  

Assets in community investing institutions are also growing, according to the trends report, rising more than 60 percent from $25 billion in 2007 to $41.7 billion at the beginning of this year.

In the press release, Social Investment Forum Board Chair Cheryl Smith, Ph.D., says "During the last three years of prolonged financial and economic turmoil, investors voted with their dollars, showing that they understand the value of incorporating environmental, social, and governance factors in the investment process."

Only time will tell what kind of impact investor pressure will have over corporations' behavior as well as that of individuals. Hopefully this is in an indication that the U.S. is moving toward more sustainable business practices – both for the environment and investors.

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