Stocks With Scruples
By S.J. Caplan July 12, 2007
from:
http://www.fool.com/investing/general/2007/07/12/stocks-with-scruples.aspx
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If you're already familiar with the basics of socially responsible investing, feel free to skip down to the latest updates. If you're just learning about the world of SRI, read on!
Socially responsible investing -- SRI for short -- isn't about being social, or responsible, in your investing (although a little responsibility never hurt anyone). Instead, SRI involves approaching your financial decisions with an eye toward their impact on society. This notion is jam-packed with personal value judgments, and not without a certain moral attitude -- but then, so are most of our daily activities.
SRI can take various strategic forms. Some investors use screens to avoid what they perceive as "sin" stocks, while others may use their shareholder power to challenge management on its current practices. This should all be no surprise to you -- the Fool's covered this topic thoroughly in the past, including a Dueling Fools debate on the subject.
Why should I care?
Please don't take this too personally: It really doesn't matter how you feel about SRI. Like it or not, it's already made itself known in the press and in the boardroom, on campus and in congregations, and through a larger number of tailored securities products, increased shareholder activism, and greater corporate acknowledgement.
According to the Social Investment Forum's fifth biennial report on investment trends, released in January, since 1995 SRI investment assets have grown faster than all other managed assets in this country -- more than 258%. The Forum's report documents an 18.5% increase in SRI mutual funds and a 16% rise in social and corporate governance resolutions over the past two calendar years.
Saving the world while you make money sure sounds great. But SRI comes with a whole host of doubts and questions. Can capitalism's inherent rapaciousness really be directed toward the greater good, or are well-meaning investors getting suckered in by companies' slick, reputation-polishing PR? You can judge socially responsible investing's impact for yourself through Foolish monthly reports like this one.
How to measure a company's merit
Who says you can't put a price on virtue? Many general indexes in socially responsible investing use a blend of exclusionary factors to bar companies involved in businesses such as alcohol, tobacco, firearms, gambling, and military contracting. Then they further evaluate candidates on issues including product and workplace safety, environmental impact, diversity, and community relations. Here are a few performance yardsticks:
The KLD Broad Market Social Index consists of all companies of the Russell 3000 index that meet research firm KLD Research & Analytics' criteria.
The Calvert Social Index consists of the 1,000 largest U.S. companies, which are then screened by Calvert, an asset management firm.
The Domini 400 Social Index includes about 250 S&P 500 companies, 100 additional companies providing industry representation, and another 50 companies with strong characteristics selected by KLD Research & Analytics. This index, established in May 1990, is the premiere benchmark for measuring the impact of SRI on financial returns, because it was the first to subject portfolios to multiple screens.
Story continues at Stocks With Scruples, Fool.com
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