Answers: Chapter 18 - Socially Responsible Investing


18.1: Socially responsible investing or SRI is generally the idea of making investments based one of the following:

  1. Solely on technical analysis (as described in Chapter 18) which includes how stock prices move up and down

  2. Solely on fundamental analysis (as described in Chapter 18) such as how much profits the company has made in the past

  3. Partially based on set of moral, ethical, or environmental guiding principles

The correct answer is #3
The idea of making investments that meet a set of moral, ethical, or environmental guiding principles is known as socially responsible investing (SRI).

 

18.2: A common term used to indicate SRI include one of the following:

  1. ESG (Economic, Social, and Governance) based investing

  2. Technical analysis based investing

  3. Fundamental analysis investing

The correct answer is #1

 

18.3: True or False. Nearly all investors agree on what should be considered socially responsible investing. The correct answer is False.

Not everyone may agree on one notion of what is considered socially responsible investing. One person may think gambling is a sin and would avoid any related investments, while another may find it perfectly acceptable to invest in gambling stocks. So socially responsibility is in the eye of the beholder.

 

18.4: True or False. Socially responsible investing started in the 1980s in opposition to the South African government's apartheid policies. The correct answer is False

SRI has a long history that spans centuries. It was common among religious faiths and indigenous cultures to consider how their economic actions impacted their communities. For example, in the American colonies, Quakers and Methodists abstained from making investments related to the slave trade, war or conspicuous consumption.

 

18.5. Which of these statements about socially responsible investing is false

  1. Socially responsible investing is generally not as profitable as other investment strategies

  2. Social responsible investing has been going on for centuries

  3. Social responsible investing depends entirely on your value system -- what you may consider socially irresponsible investing may not be the same as what others consider socially irresponsible investing.

The correct answer is #1
According to a report issued by the investment bank Morgan Stanley, titled Sustainable Reality: Understanding the Performance of Sustainable Investment Strategies, investing in socially responsible companies is more profitable than investing in traditional companies.