Sunday, February 15, 2009

Sunday's Good Read: Socially Responsible Investing (SRI)

As promised, this entry I will delve into the details of socially responsible investing (SRI). SRI, as the name implies, is an investing that not only look out for one's long-term financial well-being, but also be mindful of the good of the society at large. It strikes a chord with me early on because it is based on the premise that individual acts, such as investing, have personal as well as collective consequences as a whole. Investing, however, has much broader implications on our society and environment than everyday acts because of the prevalence of capitalism. Big corporations, such as Walmart and Coca-Cola, have as much influence on people's lives as the government, which is a terrifying fact. Fortunately, as bad as the nature of capitalist system is, we can use the same tool (i.e., capital) that the big guys utilize to exploit others and harm the environment and turn it into an instrument that lifts others' life.

Thus, socially responsible investors would screen the businesses as part of their investment portfolio (usually through buying shares and/or bonds) so that their business practices are accorded with certain criteria, although these criteria are not universally observed. First, these corporations cannot be engaged in 'sin' industries such as tobacco, alcoholic beverages, and/or adult entertainment. Second, these businesses cannot carry out practices that violates human/worker rights, such as human trafficking, child labor, worker exploitation and exposure to harmful materials within their work place, and etc. Sometimes anti-unionization policies in an corporation are also viewed as a violation of worker rights. Third, the corporations' business practices cannot pose significant damage to the environment, and if they do, some measures have to be taken to remediate the problems. Industries that are inherently polluting, such as nuclear or coal plant, chemical fertilizer and cement production, are usually excluded from the SRI consideration. Fourth, which is arguably the most controversial and ellusive, corporations should demonstrate in their business practices that they are committed to the welfare of the society as a whole, as if everyone is a stakeholder in their company. The grey area in this is that sometimes it is difficult to judge whether the businesses are sincere about their commitment and not just use this as a PR tool for their own good.

In some cases, social investors use their power as shareholders in the big corporations and force them to conduct their business in a more socially and environmentally more responsible way. This is called shareholder activism (or shareholder advocacy according to Social Investment Forum). They would skillfully use their voting power as a shareholder to influence business decisions and sometimes demand or pressure the corporate management to change their practices.

Still, other social investors opt for an alternative business model that is outside of the big-corporate-dominated capitalist system. They focus instead on the local communities (usually the ones in which they reside) and small businesses that are independent of big corporate franchaise. This type of SRI is referred to as community investing. Instead of channeling their investment and purchasing fund to the big businesses, they use their capital to support the local small businesses that would bring a more sustainable development to the local communities.

Here are some links for further reading on SRI (highly recommended):
Social Investment Forum
Green America

1 comment:

  1. Thank you, thank you, thank you! I am happy that people like you, have a good heart. I know a site that you too can share, A Global Tribe.