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 The
Companion Advisor: Investing
in Mutual Funds
Socially Responsible Investing (SRI): So who
or what is it?
By The Money Management Editor
Based on original material supplied by
Meritas Mutual Funds
Money Management Newsletter - March 2003
One of the fastest growing investment concepts
to emerge in the last few years is the area of Socially Responsible Investing
(SRI) which some people refer to as ethical investing. Recent studies
show that this segment of the investment market is growing at twice the
rate of the total investment market.
So, what is SRI? Simply put, it is the practice of incorporating
a person’s beliefs and values into their investment portfolio. This
can reflect someone’s wishes to exclude a particular industry from
their portfolio (eg. tobacco manufacturers or military contractors) or
to include only companies with excellent records on international human
rights or environmental impact.
A person’s motivation for doing this may be purely
personal or it may stem from a societal-impact view. On the personal side,
someone who has witnessed the negative effects of gambling on another
person or family may choose to exclude any companies that derive revenue
from the gaming industry from their portfolio. From the societal impact
side, an investor may want to look for companies which respect the diversity
of our society as a whole and have programs in place to ensure that there
is fair representation of all types of persons within the company. Still
others may choose this approach because of their religious convictions
or for ways to support only those companies that respect the natural environment,
wherever they operate.
The recent accounting scandals at companies such as
Enron have only added to the focus on corporations and how they operate
not only from a financial perspective, but from a social and environmental
one as well. SRI has focused on persuading companies to provide more corporate
disclosure and ensuring that they exhibit responsible management practices
long before these recent events took place.
Whatever the motivation, the number of mutual funds
available for investors who wish to incorporate their social, ethical
and environmental concerns into their investment decisions has never been
larger than it is now and the diversity of concerns that one can incorporate
into their portfolio continues to grow. What was once a niche movement
is quickly becoming mainstream.
The number one question that most people ask about SRI
is: “What effect will this have on my return?” Good news! There
is a growing body of evidence that suggests that there will likely be
no impact on your return; or, if there is an impact, it may be a positive
one. Socially screened indices in the United States have consistently
outperformed their non-screened comparative indices by significant margins.
For example, the Domini Social Index in the United States is an index
of 400 companies screened according to a number of social and environmental
criteria. Over the ten year period ended January 31, 2003, this index
averaged 9.53% per year while the Standard and Poor 500 averaged only
8.97%. (Source www.kld.com)
Perhaps the return advantage will not continue for SRI
investors in the future, but it could be true that companies with better
environmental policies and more effective employee programs, have more
efficient workforces and are less likely to be the subject of negative
press and lawsuits. Whatever the future financial returns, many SRI investors
appreciate that they are also able to get a good social return on their
money. In effect, they have a triple bottom line when it comes to their
investments: financial, environmental and social.
If you have never thought about Socially Responsible
Investing or have a current portfolio that you believe may be inconsistent
with your views on a number of social, ethical or environmental issues,
you should contact your Fiscal Agents investment advisor. Rest assured,
you will not be alone in your efforts to use your investments to shape
the future. Do your remember the old saying, “Money makes the world
go around”? Well, some of that is your money, so you should be able
to have some say in its impact on the world.
A “cover story” by Corporate Knights entitled
The Ultimate
Guide to Responsible Investing, features comments by survey editors,
Toby A.A. Heaps and Martin Toner and is available for your review. The
.pdf document provides a ranking of similar SRI type funds including their
assets and management expense ratios (MERs). The guide explains the screening
techniques employed in determining the rankings and uses small icons to
distinguish each segment category. The survey illustrates the ins and
outs while explaining the latitude of interpretation offered by certain
fund managers and some of the spin they expound.
This article was edited by David Newman and is based
on original material supplied by Meritas Mutual Funds.
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