The Basics of Socially Responsible Investing (SRI)

What is SRI?

Socially Responsible Investing (SRI) is an approach to investments that take into account environmental, social and corporate governance criteria (ESG) in addition to the typical investment and portfolio construction criteria. SRI is also known as Sustainable and Responsible Investing or Green Investing, Mission Investing, or Socially Conscious Investing.

By any name, it is an approach to investing that is designed to align personal values and goals with your investment platform. There are a variety of forms but many SRI investors hope to encourage corporate practices that promote environmental stewardship, consumer protection and human rights. The investment approach may seek to avoid companies involved in specific businesses such as tobacco, alcohol, gambling, pornography or weapons. Or, the investment approach may seek to emphasize companies that represent good governance, business practices or industry segments that the investor favors.


History and Growth

SRI in the United States really began to evolve around the 1960s, during the civil rights movement and in opposition to the Vietnam War.1 Investors were increasingly interested in opportunities to use their investment capital to facilitate change, with one highly visible movement occurring against Dow Chemical Corporation by social investors angered by the manufacturing of napalm for use in the war.2

SRI continues to flourish, and now there are approximately $3.74 trillion invested through SRI approaches. This is a 22% increase from 2009 and represents about 11% of investing dollars.3 This means that one dollar of every nine is invested this way. That is staggering! While there are many ways to invest, there are now 346 SRI funds for investors.4



At one time, it was felt that undertaking an SRI investment might have an impact on performance relative to the benchmark of a non-SRI investment.  Current research shows that SRI mutual fund performance is comparable to non-SRI fund performance.5 In one study by Mercer, they reviewed a series of studies published between 1995 and 2009.6 Of the 36 studies reviewed, 20 found evidence of a positive relationship between ESG factors and investment performance and only 3 found evidence of a negative relationship.7 Their conclusion was that a number of elements impact performance and that with the integration of ESG factors there is no longer a uniform negative impact on portfolio performance. Indeed, performance relies on a series of factors including the investment style, time period, and investment manager skill.8

One of the longest-running SRI indices is the MSCI KLD 400 Social Index, which was launched in May 1990 (it was originally known as the Domini 400 Social Index).9 The MSCI KLD 400 continues to perform competitively. The annualized return for the MSCI KLD 400 from April 30, 1990 through March 29, 2013 was 9.89%10, compared with 9.17% for the S&P 500.11

SRI approach

Investment Approaches


Screening is the practice of purposely excluding or including specific companies or industries in one’s investment choices. Common initial exclusions included tobacco, alcohol and weapons industries. Further exclusion screening may be applied to companies with harmful practices to workers and communities, or corporate governance that is not viewed as beneficial. On the other hand, SRI investors might lean toward certain other companies that benefit the community, such as those that take eco-friendly measures, employ renewable energy, and those with Board independence.

The ability to construct portfolios to avoid certain sets of securities and favor others has become robust enough to allow the overall portfolio construction to potentially produce returns consistent with broader benchmarks while supporting the values of the investor.

Corporate Governance and Shareholder Advocacy

As interest in SRI has grown, there has been a greater focus on shareholder advocacy. One goal of shareholder activism is to positively influence corporate behavior. Approaches include initiating conversations with corporate management on issues of concern, and submitting and voting proxy resolutions. The social investor typically hopes to work cooperatively with management and thereby steer the corporation on a course that will improve financial performance and empower the stockholders, employees, vendors, customers and/or communities.

Community Investing

SRI can include the concept of community investing, which allows for direct investment into a community-based organization through capital, credit or other financial support. These are direct gifts, with a different method of interaction and monitoring the investment. Community investing is still a growing trend, but it can be a unique opportunity for both the investor and the receiving organization.


Asset Classes and Benchmarks

While SRI investing primarily focuses on large capitalization stocks and equity funds, today it can apply to all asset classes, including fixed income (corporate bonds, especially).12 You can have a benchmark on any number of asset classes, including small capitalization securities and international securities. This allows you to make SRI a broader part of your overall portfolio.


What does the future of SRI hold?

As more shareholders turn to SRI, more and more options will likely become available, broadening the investment choices that can be aligned with your personal belief system. Additionally, it is likely that the opportunity to exercise custom options will grow, giving more investors the ability to set preferences for specific exclusions and inclusions that meet personal beliefs.

Today, you can also choose to add additional considerations to SRI portfolio design, such as tax management, close tracking to a benchmark, and others.13 One can only believe that the types of custom options will broaden as people identify beliefs that they want to support through investing.


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Janice Deringer


Janice L. Deringer is a member of Wipfli Financial's Investment Committee and a consultant who focuses on serving individual and corporate clients. She brings over 20 years of institutional investment management experience to her strong interest in educating women and individuals regarding financial decisions, realities and possibilities.

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The Basics of Socially Responsible Investing (SRI)

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