There are three criteria upon which socially responsible investing is built with the dual goals of achieving a good financial return on an investment while promoting social good.
The first is a strategy called ESG incorporation or including environmental, social and governance factors when choosing which investments are chosen for analysis or a portfolio. Investment products with an environmental theme may pursue green technology or a cleaner environment. Social screening typically involves selecting investments that promote the social good. Corporate social responsibility initiatives come under the heading of governance factors. Investments are screened according to these factors and are chosen for what they do positively to promote the social good such as promoting human rights, engaging in community activities, respect for environmental impact and good employee relations. A negative ESG screen might be used to avoid investments in alcohol or tobacco or companies that do animal testing on their products.
Another strategy is one that promotes shareholder advocacy. Corporate stockholders, using the power of their proxy votes, engage in the promotion of socially responsible and environmentally friendly proposals within the corporation. These activist activities generally puts pressure on corporate executives to adopt policies which are environmentally responsible as well as influencing corporate behavior when it comes to labor relations.
The third strategy of socially responsible investing is community investing. Borne from the needs of disadvantaged areas of the US and overseas who are either unserved or underserved by money center banks and financial institutions, this strategy seeks to encourage investment in local communities by investing in local businesses and institutions.
The market for socially responsible investing vehicles has grown consistently over the past decade, with $3.07 billion in total socially responsible investments logged for 2010, according to socialinvesting.org, a consumer advocacy organization. Additionally, the site cites that one out of every eight dollars under professional management is the US today is involved in some strategy for socially responsible investing.
Growth in these investments is predicted to continue for the foreseeable future due to a number of factors. New products, new funds, regulation, legislation, and heightened consumer awareness of issues all are serving to increase the market size of socially responsible investments. Indeed, foundations, institutional investors and high net worth individuals are keenly aware of the high social impact of ESG criteria investing. Both socialinvesting.org and greenamerica.org also report that of money managers surveyed, 85% indicate that they have been urged by their clients to select more socially responsible investments for their portfolios.