Goals of SRI
by: Davor Miskovic

In order to understand better the meaning behind the concept of Socially Responsible Investing, it is very helpful to clarify the goals of SRI. When we comprehend what SRI tries to achieve, then the meaning of this investment discipline can be grasped more fully. In addition, it is also crucial to understand the potential difference between Ethical Investing vs. Socially Responsible Investing, and  the historical development of Socially Responsible Investing. However, we should focus first on SRI goals.

Hudson (2005) defines three common goals of any ethical investor:

(1) to make an acceptable return on investment;
(2) not profiting from morally questionable corporations and, therefore, not compromising personal or common moral principles;
(3) affect corporate behaviour and in such a way force companies to act more ethically.

In other words, responsible or ethical investor will will not avoid investing in capital markets, and therefore will most likely hold a portfolio of securities. However, his/her investments will have to meet his/her moral standards because he/she feels a duty not to profit from unethical corporate behaviour and to, to some extent, punish such unethical behaviour by not investing money in such a company. I.e. ethical investor will most likely not hold the stocks in beverage company if he considers drinking alcohol as morally unacceptable.

At the same time, ethical investor hopes that corporate behaviour would be affected by such actions. If ethical investor is a substantial stockholder of a morally disputable company, he/she might try to use his/her ownership rights and force company's management to make positive changes toward more ethical way of doing business. This is called stockholder's activism.

In conclusion, SRI can easily be defined as an investing exercise that allows individuals not to compromise their own values while reaping financial benefits from investments, and at the same time to support fair economic activity.

References:

Hudson, R. (2005). ‘Ethical Investing: Ethical Investors and Managers.’ Business Ethics
Quarterly 15 (4), p. 641-657.