Social Responsibility

Recent news has been full of socially responsible life advice:  avoid this company because they do this unfair thing, patronize this company because they implement equitable something, etc.  While not a new concept, socially responsible investing has come into vogue.  For many of my clients, making investment decisions in light of their political, social, or religious views is a powerful notion.

In case you have received advertisements or been drawn to presentations encouraging this investment basis, it will be helpful to have a clear understanding of what these terms are referring to.  One of the resources I use with clients, Dimensional Fund Advisors, makes the following clarifying statements:

• "Socially responsible investing, which is also known as sustainable and responsible investing, broadly refers to any investment strategy which seeks to consider both financial return and social good.
• The three main advocacy issues within SRI are social, environmental, and corporate governance.  Ethical investing falls within the social category; sustainability investing falls within the environmental category.
• According to the Forum for Sustainable and Responsible Investment (formerly the Social Investment Forum Foundation), SRI is implemented mainly through investment analysis and portfolio construction, shareholder advocacy, and community investing."

There are investment funds out there referred to as ESG funds, which is an acronym for the second point above:  environmental, social, and corporate governance.  If you are considering one of these funds for your investment portfolio, make sure you ask about how it is implemented (the third bullet point above).