Examining the Meaning of Socially Responsible Investing

September 13, 2005 (PLANSPONSOR.com) - The phrase "socially responsible investing" (SRI) means different things to different people, but to all it represents one main goal: the consideration of social and environmental issues over financial issues in investment decisions.

As Socialfunds.com points out, the term is not liked by many.   To some, it is a judgmental term.   Others think it’s so broad as to render it meaningless.   For example, some SRI funds screen out companies that produce abortion equipment while others screen in companies that support Planned Parenthood.

The Web site reports on a newly released paper examining the meaning of the term.   In “Socially Responsible Investing: An Evolving Concept in a Changing World” by KLD Research & Analytics Founding President Peter Kinder, the author determines, “The terminology used to describe SRI has not kept pace with the field it should describe.”

The term SRI began as investors wanted to reflect their moral and ethical values in their portfolio selections, what Kinder calls “values-based” SRI, reports Socialfunds.com.  

Kinder also discusses what he calls “value-seeking” SRI.   In defining this term, Socialfunds.com quotes Kinder’s paper which says, “A small group asked an important . . . question: What aspects of a company’s social or environmental performance drive share value?”   Kinder adds, “Put differently, ethical considerations aside, which non-financial screens have predictive value for stock performance?”

Kinder quotesSir Geoffrey Chandler in a 2004 speech on corporate social responsibility (CSR) in his paper, who says about this type of SRI, “It is amoral in principle because it suggests that you do not do right because it is right, but because it pays.”

Finally, Kinder discusses a third type of SRI he calls “value-enhancers.”   According to Socialfunds.com, Kinder says this group uses shareholder engagement to advance shareholder value but largely “reject the notion that they are SRI investors.”   This type of SRI in a way practices corporate-governance.

As Kinder points out, the connection among the three definitions of SRI is the consideration of social and environmental issues over financial issues in investment decisions.   According to Socialfunds.com, he suggests investors of each type advance their shared interests by promoting increased disclosure of social and environmental performance data and increased shareholder rights in nominating and electing directors.

Kinder’s paper is  here .