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A growing number of people are investing their money in the future. Not just their own future, like their retirement or dream house, but in the future of their community, their environment, and their world. These people are at the heart of socially responsible investing, one of the most optimistic emerging trends in the financial world. Socially responsible investing integrates financial goals with positive personal values to give investors a voice in shaping the future of our society.[i]

The beauty of socially responsible investment is that everyone's vision of a brighter future is not the same. Some investors are more concerned about environmental problems, some feel strongly about how companies treat their employees, while others worry about the societal effects of certain products, such as tobacco, weapons, or alcohol. There are as many angles to socially responsible investing as there are investors, representing a mosaic of social concerns. But these angles share each respective individual's or institution's highest aspirations for the world.

History of Socially Responsible Investing

The origins of socially responsible investing are ancient. I think commonsense tells us that for as long as people have had resources, they used it to support causes they felt passionate about and withheld their support from causes they disapproved.

The earliest examples of socially responsible investing were religiously motivated. Jewish laws laid down directives on how to invest according to ethical values.[ii] Christian investors would avoid “sinful” companies, such as those associated with products such as guns, liquor, tobacco, and the slave trade.

When I was in college I met a man, who taught ship building at the US Naval Academy in Annapolis. He asserted that before Christianity, Roman merchant vessels were primarily galley ships that were propelled by slaves rowing them. He went on to say that after Christianity began to spread in the Empire, Christian business owners condemned slavery and as a result would not use galley ships to move their products. Consequently, galley ships were phased out in favor of sailing vessels that didn’t require slave labor. If true, this would be one of the earliest recorded examples of socially responsible investing.

It is recorded, however, that in 1728 the Religious Society of Friends (Quakers) prohibited its members from participating in the slave trade.[iii] In 1788 John Wesley, the founders of Methodism, preached a sermon on “The Use of Money” and outlined his basic tenets of social investing—not to harm your neighbor through your business practices and to avoid industries like tanning and chemical production, which can harm the health of workers.[iv]

At around the same time, in 1787, William Wilberforce became actively involved in the abolishment movement to stop the slave trade by, among other means, boycotting any product produced by slave labor.[v]

More recently, socially responsible investing was used in the Civil Rights Movement,[vi] protests about the Vietnam War,[vii] and ending the apartheid government in South Africa.[viii]

The mid- and late-1990s saw the rise of socially responsible investing’s focus on a diverse range of other issues, including tobacco stocks, mutual fund proxy disclosure, environmentally sustainable development, and other diverse causes.[ix]

What surprises many investors is that you can do well, while doing good.[x] Most investors assume that there is a financial cost to combining societal and financial goals, what's known as a multiple bottom line. But the outstanding performance of socially responsible indexes and mutual funds, as well as several recent studies, support the notion that investing with one’s values does not necessarily compromise one’s financial gains. On the contrary, some financial analysts suggest that companies that pay close attention to social and environmental risks and opportunities will be more competitive in the long run.[xi]

Current Status of Socially Responsible Investing

Although a relatively small portion of total investments, socially responsible investments continue to grow and become more mainstream and influential. Total investments using at least one social investment strategy have grown from $40 billion in 1984 to $639 billion in 1995, to over $6.57 trillion today, according to a 2014 report by the Social Investment Forum (SIF).[xii] Social investments now account for about 16% of all the money under professional management in the U.S., according to the SIF report.[xiii]

There are three primary strategies for investors to follow for advocating for their social and environmental values. The first is the practice of screening, or choosing securities based on social or environmental criteria. Screening typically involves excluding certain companies for products or practices that are considered negative, called avoidance or “negative screening.” A growing movement toward “positive screening” involves selecting companies based on their positive contributions to society or the environment. Because the process of screening requires extensive research into company policies and practices, most socially oriented investors rely on mutual funds to manage their screened investments.[xiv]

Socially responsible mutual funds address a range of issues, from environmental impacts to animal rights, from tobacco manufacturing to employee relations. There are screened mutual funds to match any investor’s values, but it is important to bear in mind that no company is perfect. A company that manufactures weapons might be a great advocate of employee empowerment. Another company that makes chairs from recycled materials might also produce toxic wastes in the process. Socially and environmentally screened mutual funds are likewise not black-and-white, as they include companies with various strengths and weaknesses based on the fund's qualitative criteria.[xv]

The second strategy for socially responsible investors is shareholder activism. Shareholders own a piece of the companies they invest in, and with that ownership comes both rights and responsibilities. A growing number of social investors use their roles as corporate owners to advocate their issues of concern, whether those are deforestation or employee wages.

Shareholders with social or environmental concerns can express themselves through dialogue with company management, shareholder resolutions, or divestment. These approaches represent three levels of engagement, but they share the common goal of making company management aware of how their practices affect all stakeholders, including customers, employees, vendors, and communities, as well as stockholders.[xvi]

Community investing is the third option open to socially responsible investors. These investments provide low interest rate loans to people in low-income communities, whether in villages in developing countries or neighborhoods in one’s own city, that would otherwise have difficulty gaining access to loan capital. Community development banks and credit unions offer loans that finance affordable housing, small business loans, and other local projects. Community development loan funds are non-profit institutions that offer financing for similar projects in low- or moderate-income communities.

Community investing provides an effective way for socially oriented investors to put money into grassroots development—and provides steady income for a well-diversified portfolio. But more importantly, it is the most direct route for investors to gain “social” returns. The emergent benefits at the community level in many cases outweigh diminished financial returns, making community investing one of the most satisfying and promising venues for socially responsible investors in the future.[xvii]

Social investing naturally comes with realization of the influence that corporations have on our quality of life and on the world's future. People disillusioned with the inertia of modern government would do well to consider the impact they could have if they invested according to their highest expectations for the future. It’s no coincidence that a growing number of socially responsible investors are influencing corporate behavior to encourage positive change in society.

Criticism of Socially Responsible Investing

I am a fan of socially responsible investing; I believe strongly in free will and think that all of humanity has a right to vote on what they want this world to look like through their pocketbook. Therefore, I think socially responsible investing is the easiest and most direct way to accomplish this. That being said there are two legitimate criticisms of socially responsible investing.

First, like all forms of Intentional Capitalism, there is no precise definition as to what socially responsible investing is or what good causes that it supports. One person may believe that socially responsible investing means helping women in poor countries have abortions. Another might believe that socially responsible investing’s goal is to prevent abortions. These differing definitions of good can cause a paradox especially if one is uninformed about how their investment is being used

And second, often socially responsible investments perform poorly and make bad financial sense.[xviii] Traditional investing focuses on tangible measures of a company’s value, such as profits and sales growth. Those measures are easy for anyone to see and understand, and so they’re already reflected in the stock price.

In contrast, social responsible investing is intangible, and so investors have a particularly hard time valuing it. How do you measure the value of a company’s environmental stewardship? As a result, traditional investors mostly ignore companies’ social responsibility. They only catch on when its effects show up on the bottom line, for everyone to see. But then it’s too late—the stock price has already risen.

As an example of this, from 2006 to 2016, 65% of all socially responsible investment funds have trailed the average returns of their peers by a significant margin.[xix] That makes one wonder if they are better off investing in a traditional investment which generates a higher return and use the excess gains to support causes that one believes in directly.


[i]Kevin T. Jackson, Building Reputational Capital: Strategies for Integrity and Fair Play That Improve the Bottom Line (Oxford, UK: Oxford University Press, 2004).

[ii]Michael Monahan, “The Ethics of Socially Responsible Investing” in Business & Professional Ethics Journal 21. 3/4 (2002): 27-46.

[iii]Arthur Stuart Pitt, “Franklin and the Quaker Movement Against Slavery” in Bulletin of Friends Historical Association 32.1 (1943):13-31.

[iv]John Wesley and Henry Maldwyn Hughes, The Use of Money (London, UK: Wesleyan Methodist Union for Social Service, 1912).

[v]John Pollock, Wilberforce (New York, NY: St. Martin's Press, 1977), 69.

[vi]Martin Luther King Jr, Stride Toward Freedom: The Montgomery Story (Boston, MA: Beacon Press, 2010).

[vii]Jon Entine, “The Myth of Social Investing” in Organization & Environment 16.3 (2003): 352-368.

[viii]Siew Hong Teoh, Ivo Welch, and C. Paul Wazzan, “The Effect of Socially Activist Investment Policies on the Financial Markets: Evidence from the South African Boycott” in The Journal of Business 72.1 (1999): 35-89.

[ix]Benjamin J. Richardson, Socially Responsible Investment Law: Regulating the Unseen Polluters (Oxford, UK: Oxford University Press, 2008).

[x]Alan Murray, “Doing Well by Doing Good” in Fortune (September 1, 2015).


[xii]USSIF Foundation, The Impact of Sustainable and Responsible Investment (Washington, DC: USSIF Foundation, 2014), 2.


[xiv]Steve Schueth, “Socially Responsible Investing in the United States” in Journal of Business Ethics 43.3 (2003): 189-194.


[xvi]Terrence Guay, Jonathan P. Doh, and Graham Sinclair, “Non-Governmental Organizations, Shareholder Activism, and Socially Responsible Investments: Ethical, Strategic, and Governance Implications” in Journal of Business Ethics 52.1 (2004): 125-139.

[xvii]Russell Sparkes, Socially Responsible Investment (Hoboken, NJ: John Wiley & Sons, 2008).

[xviii]Alex Edmans, “Does Socially Responsible Investing Make Financial Sense?” in the Wall Street Journal (February 28, 2016).