Money Maven: Socially Responsible Investing

By Sheryl Rowling

Sheryl Rowling

SAN DIEGO — Many people are interested in socially responsible investing.  After all, aren’t we supposed to take part in tikkun olam?  But, most people – and their advisors – don’t really know how to define or implement or socially responsible investing!

 

“Socially responsible investing” (SRI) means investing based on personal values.  SRI allows investors to incorporate personal values in investment decisions, while indirectly promoting corporate responsibility.  There are two primary methods for accomplishing SRI:

  • Screening

  • Community Investing

 

These strategies can be used separately or simultaneously, depending on the investor’s preferences.

The most common SRI method is Screening.  This method evaluates individual investments based on their positive contributions to society and/or the environment.  “Negative” or “Exclusionary” screening eliminates companies not in compliance with designated values.  For example, tobacco and firearms industries are typical exclusions from SRI portfolios.  “Positive” screening chooses companies that display environmentally friendly practices, respect for human rights, and/or produce “safe” products.

Community Investing targets local, entrepreneurial businesses to help provide them with access to credit, equity, and additional resources.  By investing capital in certain institutions, community loans funds, or regional development bonds, opportunities can be created for low-income individuals, community childcare facilities, affordable housing, and healthcare.

SRI has gathered a lot of attention recently because of a growing desire among investors to have their portfolios reflect their personal values.  In fact, about one out of every nine dollars under professional management in the U.S. is invested in a socially responsible manner.

By investing in a socially conscious manner, the investor will be eliminating the non-socially conscious parts of the market.  Thus, an SRI policy can cause the investor to do better or worse than the overall market.  It’s possible to construct a socially responsible portfolio that performs similarly to a standard portfolio.  However, it will likely have higher risk than a standard portfolio.

Bottom line:  Whether or not to invest in a socially responsible way ultimately depends on your personal preference.

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Rowling is a certified public accountant, personal finance specialist, and principal of Rowling & Associates. She may be contacted at sheryl.rowling@sdjewishworld.com