Americas Quarterly - Winter 2008

Investment with a Conscience

ocially Responsible Investment (known also as SRI) has become a growing, and profitable,

trend in professional asset management that is now catching on in emerging markets. SRI funds provide investors who have moral qualms about supporting a polluter, a company with a bad track record in labor rights or one of the “vice industries” a way to invest with a clear conscience.

Since investors have different ideas of what constitutes immoral investments, screening for SRI portfolios differs. Some exclude companies related to tobacco, alcohol and the production of weapons. Others, designed to provide an option for religious organizations, can exclude pharmaceutical companies that manufacture abortion-related products. And some recent funds review a company’s annual reports to evaluate environmental policies.

There are other strategies being adopted as well. In the U. S., some SRI managers are considering corporate governance in the measurements, particularly investor participation in boardroom decisions concerning social or environmental issues. Investment managers have also created special accounts to focus on companies that invest profits in underprivileged communities that lack traditional financial services.

Recently, governments have also started to shift public pension funds to SRIs. Several European countries require pension funds to report on the ethical, social and environmental factors considered in their investment decisions. And in Brazil, the largest pension funds recently started adopting SRI standards in some of their portfolios.