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Socially Responsible Investing on the Rise

(Oct. 10, 2005) More than one out of every nine dollars invested and professionally managed in the United States, or $2.16 trillion, is involved in a socially responsible investment, according to a report by the Social Investment Forum.

Socially responsible investing involves integrating the investor's personal values and societal concerns into his or her financial decisions. There are three basic strategies of socially responsible investing:

  1. Screening involves the inclusion or exclusion of certain corporate securities from an investment portfolio based on the corporation's philosophy, attitudes and actions towards various social issues. Investors might decide to invest only in companies that support environmental or labor causes, or conversely, reject companies that are supportive of certain industries, such as tobacco, gambling, alcohol, etc.
  2. Shareholder advocacy describes investor efforts to submit and vote corporate proxy resolutions as a means of influencing company behavior. This strategy was successful in pressuring corporations to pull out of South Africa. It also has been instrumental in reporting minority-hiring practices and improving environmental practices through adoption of the CERES principles (an environmental code of conduct).
  3. Community Investing is capital from investors that is directed to communities underserved by traditional financial services. It provides access to credit, equity, capital and basic banking products that these communities would otherwise not have. Community investors accept at- or below-market rates of return in exchange for the opportunity to make a difference in these communities.

Since 1995, when the Social Investment Forum first began tracking the numbers, total assets involved in socially responsible investing have grown 40 percent faster than all professionally managed investment assets in the United States.

Socially responsible investors do not necessarily have to worry about making money, either. The 2003 Report on Socially Responsible Investing Trends in the United States (the most recent biennial report) showed that while professionally managed portfolios fell by 4 percent in 2001 and 2002, socially screened portfolios grew by 7 percent.

While the 2005 report is not due until November of this year, anecdotally the Forum indicates that socially responsible investing has continued to grow quite strongly over the past two years.

The Social Investment Forum is a national nonprofit membership association based in Washington, D.C., dedicated to promoting the concept and practice of Socially Responsible Investing. The Forum is made up of more than 500 financial professionals and institutions. Membership is open to any organization or practitioner who wishes to participate in the socially responsible investing field.

The 2003 Report on Socially Responsible Investing Trends in the United States (PDF format, 66 pages) is available on the Social Investment Forum's website.

Who Are Socially Responsible Investors?

Two recent surveys by the Calvert Foundation shed light on some of the characteristics of individuals involved in its community investment program.

The Calvert Foundation, based in Bethesda, Md., seeks to help end poverty through a variety of investment tools. The foundation conducted surveys in 2003 and 2005 of 400 of their approximately 2,000 investors to determine the general demographics of community investors.

The results show that a slight majority of community investors are female (55 percent). A solid majority is middle class, with 75 percent earning less than $100,000 per year and about 32 percent making less than $50,000 annually.

Other key findings of the Calvert Foundation survey included the following:

  • Fifty-six percent reported investing 50 percent or more of their assets in SRI versus just 40 percent in 2001.
  • Twenty-five percent said they are investing 10 percent of more of their assets in community investing, compared to just 18 percent in 2001.
  • Areas of greatest investing for community investors are: environment (17 percent); job creation (15 percent); homelessness (14 percent); women's issues (12 percent); and cooperatives (11 percent). All other issues attracted less than double-digit expressions of interest from those surveyed.
  • Sixty-eight percent of Calvert Foundation CI Notes investors hold post-graduate degrees and another 29 percent with at least undergraduate education.
  • Sixty-one percent reported using financial advisors, which was up from 55 percent in 2003.

Community Investment Notes offer investors a modest interest rate (2 percent for one-, two- and three-year notes, and 3 percent for five- seven- and 10-year notes) and use investor principal to create a loan portfolio that funds affordable housing, micro-enterprise, and community development all over the world. Once an investor purchases a note, Calvert Foundation performs rigorous due diligence and then invests the funds in organizations with secure financial positions and high social impact.

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