Socially Responsible Investing

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Socially Responsible Investing in the Financial Market

ABSTRACT
This paper talks about socially responsible investing in the financial marketplace which mutual funds and other individuals should consider while investing for the betterment of the society they live in. It first describes what social responsible investment is, and then provides some challenges faced by this form of investment. Finally the paper also provides some recommendations to address these challenges to create a healthier investment climate.

Contents

INTRODUCTION3
ETHICAL INVESTMENT4
FINANCIAL PERFORMANCE OF ETHICAL FUNDS5
SHAREHOLDER ACTIVISM7
COMMUNITY INVESTING7
STAKEHOLDER THEORY AND IT’S RELATIONSHIP WITH ETHICAL INVESTMENT9
CHALLENGES FACED IN SOCIAL RESPONSIBLE INVESTMENT10
RECOMMENDATION FOR FOSTERING AN ETHICAL INVESTMENT CLIMATE13
CONCLUSION15
REFERENCES16

INTRODUCTION

The financial market is a casino filled with large number of people awaiting to make huge sums of money. Often, people invest their savings in the hope of retiring wealthy, but little do they realize that this investment they make has various social repercussions. The financial market comprised largely of corporations, investors, portfolio managers and brokers provides a gamut of opportunities for its participants to make money. The sole objective of these participants is to maximize returns. Participants with their increased desire to make more money often resort to unethical practices which are against the common good of the society. Little do they realize that their actions ultimately affect the society at large. Is the financial market really a wrong place to be in? Do investors and other participants in the market lose their moral values and social responsibilities in their greed for money? Is there a way by which investors could maximize their own financial return while simultaneously contributing to the society? Ethical investment is the “new” word of this era and has been coined for those who believe that it possible to increase one’s wealth while simultaneously performing a social good. This paper, talks about Ethical investment as a means to increase wealth for investors. It begins by outlining the definition of ethical investment, the people connected in the process, the forms of ethical investment and the challenges faced by the socially responsible funds. Ethical Investment is not only limited to investing in the right kind of stocks, but also involves providing the right information to the investors. Finally recommendations are provided to incorporate this form of investment in the society.

ETHICAL INVESTMENT

Ethical investment is an investment philosophy which attempts to balance the regard for morality of a firm’s activities and regard for return on investment.(1) Investors invest in corporations through mutual funds. A Portfolio manager’s role in the mutual fund is to maximize the wealth of the investors, through investment of assets in stocks of corporations. Every citizen/corporation has a social responsibility towards the society in which he lives in. Similarly mutual funds have a responsibility towards the society in which it operates. By investing on companies, investors seek to promote the growth and development of the company in anticipation of good results. They thus play a role in promoting the activities of the corporation towards making profits. For example in emerging markets, many large retailers employ children to make garments. By investing in such a retail company the investor is providing the necessary funds to promote child labor- an issue most often opposed in the society. Thus an investor is also socially responsible to the society through the investment he makes. Thus ethical investment is sometimes also referred to as “socially responsible investment (SRI)”. Socially responsible investment, thus involves investment in those funds that do not invest in stocks that may have a negative impact...
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