Gauging Your SRI Tolerance

A CLEAN ENVIRONMENT -- ONE GOAL OF SOCIALLY RESPONSIBLE INVESTORS

A CLEAN ENVIRONMENT -- ONE GOAL OF SOCIALLY RESPONSIBLE INVESTORS

So far, we have defined the meaning of socially responsible investing (SRI) and the increasing tendency for young people to be interested in making a statement with their investment choices. However, we have not described how to identify companies that are socially responsible. The difficulty in this process is that 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. 

Not caring about SRI does not make you a bad person. You may be doing things in your own life to encourage sustainability in your family or your community. For example, you may be involved in your local religious institutions to help the homeless, in recycling programs to reduce waste, and in other activities that reflect your view of what it means to be a good citizen. However, if you choose to extend your general sensibilities about ethics and sustainability to your investments, you need to have some standards in place. 

In some cases, it may be easy to see how socially responsible a company is, because its products or mission statements can identify it as socially responsible or not based on a set of moral or ethical principles. For example, some religious investors may classify a tobacco company as not making a sustainable product that lends itself to SRI. Likewise, the stated mission of an ice cream company like Ben & Jerry’s has been linked to social responsibility and sustainability from the outset. These two examples are somewhat clear-cut as belonging to one side of the social responsibility spectrum or another. 

However, there are some gray areas. A big company that has many divisions may be engaged in some activities that you don't think are socially responsible, but then it may have a charitable arm that encourages green activities. Does that charitable arm make up for the harm that you believe the company is doing in its other divisions? Only you can decide. One way to solve this type of dilemma is to see if the major activity of the company meets your guidelines for socially responsible investing. 

As a Teenvestor who may want to invest only in socially responsible stocks or funds, the first thing to recognize is that you cannot solve all of the world’s problems at once through your investment decisions. In other words, it is unlikely that you will be able to find companies that meet all of your socially responsible standards. It is best to focus on certain goals such as avoiding companies that manufacture specific products you consider to be dangerous for the world, or investing in companies whose activities are consistent with your views of the general welfare of other human beings.

The table at the end of this article lists some of the most important SRI considerations used by investment professionals as identified by The Forum for Sustainable and Responsible Investment (US SIF). The table shows the top issues considered by these professionals related to products, social, environmental, and governance (management issues such as executive pay, etc.) concerns. In addition, Column E on the table lists the top combination of SRI considerations used by these investment managers. Keep in mind that some of the items will change based on what is going on in society and the world.

To come up with your own criteria of what makes an SRI, just restrict your considerations to a handful of items. It is easy to avoid certain companies that make products like tobacco and alcohol. But it gets more challenging if, for example, you want to avoid companies that contribute to bad labor practices around the world, because then you would have to know where companies make the components of the products they sell.

Here are some general procedures for how you can screen investments to determine if they are in socially responsible companies or entities:
First, determine what is important to you – limit it to 2-4 items from the table below.

  1. If you are looking at buying the stock of a company, perform a Google search using the name of the company and “corporate responsibility,” “socially responsible investing,” or any other term that related to the criteria you have identified.
  2. If you are looking at a mutual fund, the prospectus may point you to the fund’s stance on socially responsible investing.
  3. Visit the company’s or mutual fund’s investor relations website to see what statements they make about their guidelines associated with your criteria.
Screen Shot 2016-12-28 at 3.13.47 AM.png