Definition: Socially responsible investing is the allocation of financial resources, considering both economic and social criteria with the goal of maximising the potential financial and social returns to both the investor and the beneficiary.
According to Sanlam “Socially Responsible Investing” (SRI) has been receiving lots of attention in the global investing scene of late. SRI constitutes $2.29 trillion of the US market. That is nearly one out of every ten dollars under professional management.
The concept might seem strange in a world that revolves around making money. The concept of social returns in addition to economic returns can help us understand the benefits of imposing such a moral attitude to the normal investment decision making process.
Extensive research has been conducted on the economic viability of SRI and results tend to show that it can make financial sense. The reasoning is that sustainability is enhanced by looking beyond profit figures.
The types of SRI include:
• Job creation
• Religious
• Labour relations
• Environmental policies compliance
• Corporate governance
• Exclusion of “sin stocks” (e.g. tobacco, gaming, alcohol, pornography and defence)
There are four ways to incorporate an ethical approach into your investment strategy. They are:
1. Screening excludes certain securities from investment consideration based on social and/or environmental criteria.
2. Divesting is the act of removing stocks from a portfolio based on mainly ethical, non- financial reasons.
3. Shareholder activism efforts attempt to positively influence corporate behavior.
4. Positive investing involves making investments in activities and companies believed to have a high and positive social impact.
In South Africa, positive investing falls strongly in line with the spirit of empowerment financing under the auspices of the Financial Services Charter (FSC). Institutions are encouraged to take part in what are termed targeted investments and BEE financing with the intention to aid in uplifting previously neglected areas of our economy. Even though pension funds are not currently required to adhere to the requirements of the FSC, this might change in the future.
Investment advisors might be advised to investigate the opportunities presented by Socially Responsible Investing. With an increasing awareness of the need for responsible citizenship we can expect a bigger emphasis on responsible corporate behavior in future….
Recent Comments