Socially Responsible Investing

A myth exists that investing in socially responsible companies means sacrificing returns but studies have shown otherwise. Every year the global 100 most sustainable companies are announced in Davos, Switzerland. The companies are chosen based on social, environmental and governance criteria and are back- tested against the MSCI World Index. Since its inception in 2005 the Global 100 Most Sustainable Companies Index has outperformed its benchmark, the MSCI World Index by 480 basis points per annum, last update was 2008.

Although the beginning of SRI can be traced back to the religious community of Britain over 300 years ago modern SRI began to pick up after photos the Vietnam War prompted protests across the country against Dow Chemical, the maker of napalm as well as many other companies that profited from the war. Over the past thirty years socially responsible investors have forced companies to become more accountable, making them reduce pollution, improve safety for workers and observe international human rights standards. Socially responsible investing is about making companies perform better financially, socially and environmentally.

Although the exact guidelines may differ by manager, there are several commonly used screening processes to avoid investing in companies that are active in controversial business, for example weapons companies, tobacco companies and alcohol companies. Socially responsible investing has become a booming trend in the US and Europe, have increased to approx 2.71 trillion from 2.16 in 2003. In Europe the trend is growing even faster, it grew from €1 trillion in 2005 to €1.6 trillion in 2007.

There are many ways that investors can get involved in socially responsible companies. They can invest in individual companies that qualify as socially responsible, purchase a mutual fund that is committed to only investing in socially responsible companies or purchase an exchange traded fund such as ishares jantzi social index fund (XEN.T).

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