“Even the decision to invest in one place rather than another...is always a moral and cultural choice.” -- Pope John Paul II, Centesimus Annus, N. 36

## Introduction

When you put your money in the bank, it does not sit in a vault – it is invested in companies, many of which may be counter to your moral or ethical beliefs. Socially Responsible Investing (SRI) can overcome this problem and has the potential for green investors to influence society in beneficial ways, helping to improve the prospect for a humane, just and peaceful social order. There are four main categories of SRI, which can be utilized by lower, upper and middle class investors for competitive rates of return on their savings[1].

### Avoidance Screening

Avoidance Screening entails ensuring you do not invest money in corporations whose practices are counter to your moral or ethical values. For example, investors might avoid tobacco companies (responsible for 400,000+ deaths each year in the U.S alone), land mine producers (land mines maim or kill approximately 26,000 civilians every year, including 8,000 to 10,000 children), weapons of mass destruction manufacturers, or companies that are implicated in using slave labor. If you already own mutual funds or stocks in companies that do not agree with your ethical values - you may want to consider divesting.

This approach is also known as light green (e.g. light green funds or a light green screen).

For example:

• FLI has a guide on how to divest from nuclear weapons.

## Difficulties

• Finding ethical investments can take extensive research. For this reason:
• Ethical investment funds are in a better position to do so. Whether they do so properly varies between funds, and public scrutiny of their decisions is valuable.
• Indices also can provide a guide, though their analysis is also open to question.[3]
• Restricting investment opportunities makes a balanced portfolio more challenging. To be truly socially responsible, it is necessary to seriously face questions of fossil fuel investment, for example. A choice must be made between these approaches:
• Remove the entire segment of investment from the portfolio, favoring (for example) renewable energies; or
• Acknowledge that fossil fuel use will not disappear immediately, and invest in the least damaging as a transitional form. This recognizes that there are very large differences in carbon impact between activities within the same sector, from natural gas (lowest climate change impact) (citation needed) to petroleum and coal (much higher), through to shale oil (far more damaging).
• "Reward" certain fossil fuel companies that engage in relatively green behavior. In this case researchers and investors must be extremely wary of greenwash, and consider how serious and significant the behavior actually is.

## References

1. In fact there is substantial evidence that socially screened investments may outperform their non-screened counterparts. Shank, Todd M., Daryl K. Manullang, and Ronald Paul Hill. “Is it Better to be Naughty or Nice?” The Journal of Investing. Fall 2005: 82 – 87 -- cites a study that compared portfolios comprised of top socially responsible funds and top vice funds. Analysis of alpha regression models found that in the short-term, differences between the two portfolios’ performance was negligible. Only the SRI funds had any significant positive risk-adjusted performance. For the five and ten year period, only the SRI portfolio had positive and significant alpha value, suggesting that the market valued the features of the companies in the SRI portfolio. For the same periods, the vice portfolio showed no significant excess return. These findings indicate that the market valued the features of the SRI portfolio over the longer time horizons, while not valuing the vice funds for any period, and it was the SRI portfolio that had superior risk-adjusted performance.
2. Report: Socially Responsible Investing Assets In U.S Surged 18 Percent From 2005 To 2007, Outpacing Broader Managed Assets [1]
3. The sham of "socially responsible investing",J. Henderson, Mises Economics Blog, April 11, 2007. The article points to the SRI preference for BP over Exxon, and Reebok and Timberland over Nike, and argues that it is not the case that the SRI favorite is more ethical, and that the analysis used is shallow (e.g. Nike being allowed back into KLD's SRI index "on the basis of some favorable news clippings KLD found").