Tag: SRI

They’re three methodologies utilized in Socially Responsible Investing.  I only favor one of them.  Read on to see which one and why.

1. Negative Screening (“Exclusionary”)
2. Positive Screening (“Qualitative”)
3. Shareholder Activism (“Value Enhancing”)

There’s another lesser-known strategy called Impact Investing that’s used by foundations (i.e, Acumen, Rockefeller).  In this strategy, an investor (not individual) will actively seek to place direct capital in businesses that give social returns and $$$ returns.  The key here is direct investing.  Impact Investing is similar to venture capital as the investor might take an active role leading, or mentoring the company.  An example would be microfinance. We won’t spend any more time on Impact Investing as we’ll be focusing on ownership of public shares.

1.  Negative Screening:  is one of the first strategies historically used for SRI.  In this methodology, companies are excluded based on specific criteria.  Most of these screens focus on the avoidance of “sin stocks.”  These include the usual suspects:  Casinos, Weapons, Alcohol, Tobacco, and Nuclear Power.  Nuclear Power, you ask ?  It is easy to bulls-eye Nuclear Power given its association with nuclear warheads, and recollections of Chernobyl.  Then there’s the dillema of nuclear waste.  However, since Nuclear Power helps reduce Global Warming, I think their benefits far outway their disadvantages, and our fears.

2. Positive Screening:  This is a qualitative approach that invests in companies that serve their local communities, have ethical products, operate within a sustainable manner, and are very well aware of people/stakeholders.   This not only includes their direct labor, but supply chains (i.e, in Vietnam), and at an even higher level, international human rights.   Positive Screening will be utilized in this blog, and real concrete examples will be examined.

3.  Shareholder Activism:  In this strategy, an investor, in this case, an Asset Manager/Pension Fund, tries to enhance value by engaging the company.  Hence, the “activism” label.  The asset manager will identify underperforming companies in need of better management, which may be accomplished via proxy voting.  Or the Asset Manager might be protesting unjustly high executive compensation.  Shareholder Activisim is a more recent trend of SRI.  I disfavor this for several reasons.  For one, the individual investor has no involvement.  It is the machinery of a large asset manager that is making the decisions.  The other strategies are more personal, whereby the individual investor seeks to align his/her personal values with specific (long-term) investments.  Which segways me to my next concern – shareholder activism is more short-term oriented, and portfolios may not be very diversified as the asset manager needs to accumulate large share positions to gain voting power.  And do we really want the Carl Icahns of the world labeled Socially Responsible?  There is a place for Shareholder Activism in the world of investing. I’m just not sure it’s in the SRI realm.

Background:
Before I start making specific recommendations, some house-cleaning is in order, well, more like “Back to Basics. ”  SRI stands for Socially Responsible Investing.  In some walks of life, one might consider this term Communist/Socialist.   Could this be true?  Social implies Socialism – not much of a stretch…  Responsible implies doing good (an action) for the common good.  You see my point ?  Well, in truth, it probably is a tad on the Socialist side.  I’d rather describe it as investing with the soul for all souls.

Should we be thinking w/ our Head or our Heart ?
There’s a sort of warm & fuzzy feeling I get when I read about a SRI-oriented company like Starbucks.  You can’t put your finger on it, but there’s something there, and you know it when you see it.  The purpose of this Blog will be to locate concrete tangibles I can share w/ you about these special companies.  ‘Cause, I don’t think a portfolio manager would accept,  “I gotta good hunch about this company” as a valid reason for making an investment decision.   And if he did, the asset manager would be subject to litigation for disregarding the Prudent Man Rule.

I’ve searched the Internet for the best information on SRI.  These are provided to you on the right side of this blog (“Useful Links…“).   Unfortunately, everyone’s definition of SRI is a different shade of blue.  Below, I’ve compiled them into one broad definition.  Later, I will discuss trends in SRI, including how this definition’s changed over time, as well as the 3 major strategies utilized.

Socially Responsible Investing (“SRI”) is generally an investment strategy that seeks maximum profits by investing in companies that exhibit ethical behavior. 

What’s in a name ?
SRI is sometimes called socially-concious (as opposed to anti-social & unconcious ?), or ethical investing.  In layman’s terms, Passive, or Index Investing would be considered somewhat of a polar opposite investing methodology.  Note that Index Investing is an excellent strategy for maximizing profits.  Stay tuned for my posting on whether SRI investing is a worthwhile endeavor.


History:  
Most researchers report SRI may date back to the Quakers (circa 1758), who prohibited members from participating in the slave trade – you know, the buying/selling of human beings (which still exists today in a different form).  I doubt SRI started as recently as 1758 as we tend to view history from our American (Western) point of view.  In my view, it likely started during the early days of global trade (perhaps hundreds of years earlier !)

Well, this ends my first official blogpost.  If you have any questions, please feel free to contact me.  And join my blog !