Doing good: are socially responsible investments much ado about nothing? - SRIs

Entrepreneur, Oct, 1996 by Lorayne Fiorillo

Even if You were born on a lily pad, it isn't always easy being green. Recycling soda cans, detergent bottles and newspapers is simple stuff compared to preserving the wetlands or saving the whales. When it comes to socially relevant issues, it's wise to remember that the evil men do lives after them, and saving the planet is everyone's job. Some their personal vision into the realm of their investment portfolios.

Ethical or socially responsible investing (SRI) began as far back as the 1920s, when some church endowments avoided investing in "sin stock," including liquor, tobacco and gambling companies. Social activism reached new heights during the Vietnam War, and this translated into increased vigilance on the part of Investors in the 1960s. For the first time, many investors realized that the comfortable companies that provided them with washing machines and TV sets also made warheads and tanks.

With the birth of the Council on Economic Priorities in 1969, public companies were rated on the essential issues of the period, including military contracts, environmental pollution and minority, hiring practices,

The politically correct climate of the 1990s has revitalized public awareness about investor activism. More and more investors are considering the products and services of companies in which they invest with an eye to a double bottom line: They not only want to know if the company is a good investment, they also want to know if the company meets their chosen social criteria.

Over the last several years, the hottest issues to emerge in the field of social investing have been environment and labor. Interest in the traditional social issues of alcohol, tobacco, gambling and weapons manufacturing has not diminished, either. Other popular social investment concerns include contraceptives, abortion, pornography, animal rights and nuclear power, to name a few.

* TO THINE OWN SELF

BE TRUE

Before you embark on a mission to save the portfolio, don't jump at the first investment touted as socially responsible. Perhaps the most important criteria to keep in mind are your own. Individual social priorities vary widely, and it isn't enough to say "I want to invest only in good companies."

Suzanne Harvey, director of the Social Investment Research Service at Prudential Securities in Arlington, Virginia, says there are two ways to screen a portfolio: positive and negative. "A negative screen avoids particular companies or industries - no mining, oil or chemical manufacturers, for example," Harvey explains. "A positive screen looks for companies with above-average records in a particular area, like workplace practices or the environment." The key is to define your criteria, then build your portolio as you like it. Do you care about cleaning up the environment, or do cigarette manufacturers burn you up? Would you prefer to avoid companies that manufacture nuclear weapons, or do you actively seek companies that are proactive in hiring minorities and have family-friendly policies?

If you want to reach your financial as well as social goals, you-should avoid becoming so restrictive that you eliminate whole industry groups. By picking your battles carefully and avoiding the most rigid version of every conceivable SRI, you can find companies that are acceptable on more than one level and build a profitable portfolio.

* TO INVEST OR

NOT TO INVEST

No matter how good, every company has some qualities that may be considered socially unredeeming. The question is, When doth the investor protest too much? Standards used for judging companies are as individual as investors themselves; what is considered socially responsible or irresponsible is subject to interpretation.

Some socially conscious investors avoid U.S. government-backed securities because of government involvement in weapons or because of politically conservative or liberal stands on various issues. On the other hand, money raised through the sale of these same debt securities funds AIDS and cancer research, supports the arts, pays for school lunches and backs programs designed to help the poor and seniors. For that matter, those who choose to be socially responsible in a strict sense, avoiding, for example, stocks of tobacco companies, may have to wrestle with the idea of using other products made by the same conglomerate. Many investors are surprised to find that tobacco companies produce widely used products ranging from candies and pickles to cheese and cookies. These same companies may also contribute to society by donating space, time and money to museums, ballet companies, struggling theatre groups or public TV stations.

Some companies that appear on one list of socially responsible businesses don't appear on others. Strict screens eliminate companies that have minor infractions, where others allow more broadbased criteria. In the end, the decision rests with the investor, and more and more investors are considering investments that make them feel good, as well as those that make them money.