The modern roots of social investing can be traced to the impassioned political climate of the 1960s.
During that decade, a series of social and environmental movements from civil rights and women’s rights, to the anti-war and environmental movements served to escalate awareness around issues of social responsibility. These concerns also broadened to include management and labor issues, and anti-nuclear sentiment. In the late 1970s, the concept of social investing began attracting a considerably larger group of American investors due, in large part, to concerns about the racist system of partheid in South Africa. Concerned U.S. investors joined international efforts to put economic pressure on South Africa to end partheid. A growing number of investors throughout the 1970s and 1980s used both screening and shareholder advocacy to press for change in South Africa. Both individual and institutional investors refused to invest in companies who did business in South Africa, and sponsored shareholder resolutions asking companies to withdraw from South Africa.
Today the field is characterized by greater social and political sophistication, and generally includes the following:
”¢ positive screens (identifying and researching socially advanced firms)
”¢ shareholder activism (voting or filing shareholder resolutions, and lobbying on social issues)
”¢ community investing (dedicating a portion of the portfolio for community development)
”¢ social venture capital.
The community of social investing also includes social and environmental investment firms, various social action forums, networks and alliances.
Some studies are more sharply critical indicating that encouraging the idea that business intentions are distinctly different from economic intentions may promote non-ethical social behavior with adverse consequences to stockholders. Nevertheless, there is general agreement that any economic system, including capitalism, which lacks an ethical component, cannot survive.
Socially responsible investing is growing exponentially in the numbers of individual and institutional investors; the amount of invested money; and the movement’s ability to persuade corporations to commit to social responsibility in its pronouncements and practices. Significantly, recent studies indicate that treating stakeholders well in an on-going operational way may be the best way to build superior financial performance and overall organizational performance.
If these pronouncements are correct, then information on managerial recognition and understanding of the role of social investment in corporations’ sustained competitive advantage is important.
Another area that is fueling fire to the importance of these organizations is the growth of technology. The socially responsible firms utilize technology to quickly identify research and monitor the suitability of the companies and communicate demands of investors and concerns of corporate management.
The United Nations Principles of Responsible Investment
In 2005, the United Nations invited the world’s largest institutional investors to jointly develop international guidelines for responsible investing. They agreed on the following principles:
1. We will incorporate ESG issues into investment analysis and decision-making processes.
2. We will be active owners and incorporate ESG issues into our ownership policies and practices.
3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.
4. We will promote acceptance and implementation of the Principles within the investment industry.
5. We will work together to enhance our effectiveness in implementing the Principles.
6. We will each report on our activities and progress towards implementing the Principles.
In 2009 these Principles have been signed by over 470 global investment institutions managing over $18 trillion in assets.
Types of ethical investment
Among the types of ethical investing the following can be listed: stocks, proxy voting, microloans, finding mutual funds, index funds and exchange-traded funds (focused on ethical investing), investing in environmental companies or religion institutions companies.
The businesses/sectors that being avoided by ethical investors
The companies that produce specific products or services and that operate in certain countries (in other words, businesses that do not correspond the goals and do not meet the requirements of ethical investing) are not being invested by ethical investors. For instance, it may be tobacco industry, alcohol, gambling, weapons and nuclear power and also a clothes business famous for its sweatshops in developing economies like China, Vietnam, and Indonesia etc. (Hawser, 2006),
Keeping in mind all the advantages of ethical investment, we should remember that it is also considered quite risky. In general, any type of investment has a risk factor, therefore all the arguments must be analyzed before the decision is made.
Vulnerability of ethical companies due to their shorter history and experience, smaller capitalization or higher level of risk should be taken into account as well. (Boasson, Cheng and Boasson, 2004). Investor should always be responsible for his choice and to be able to bare the possible risks.
Sparkes R., (2002), Socially Responsible Investment: A Global Revolution, Wiley
Ghannadian F. and Johnson V., (2007), Socially Responsible Investing: Attitudes and Behaviors of Mid Level Managers, Journal article; International Journal of Business and Society, Vol. 8
Boasson V., Cheng J. and Boasson E., (2004), Are Investment Managers Investing Ethically at a Disadvantage?, Journal article; Journal of Applied Management and Entrepreneurship, Vol. 9.
McAteer M.,(April, 1998), Ethical Investing Shows Remarkable Growth, Magazine article, Anglican Journal, Vol. 124
Hawser A. (October, 2006), Ethical Stocks Are Winning over Fund Managers, Magazine article , Global Finance, Vol. 20.
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