As I am currently following a financial training, and because I’m also really interested in Shares Portfolio Management, I wanted to focus on the Socially Responsible Investment (SRI).
As you may know, ethic and social responsibility are newly popular trends and have recently reached the investment process. On one hand, you have the people’s will to invest in firms recognized as responsible that is very personal, morality and ethic being subjective notions.
On the other hand, as an investor, the first element you will take into account should be the yield and profitability of the chosen share. However there is actually no guarantee regarding the performance of socially responsible companies.
SRI funds are means for individuals to invest in social responsible firms and banks have created them to respond to the demand. At the beginning, it was to enable people to invest in firms that had no link with the armaments industry during the Vietnam War. Now the movement has evolved and a company has to meet several criteria in order to be categorized as ethical.
Surely, several studies shown that socially responsible companies usually do not under-perform; but no link can be established between their behaviour and their financial results.
As you may know, consumer’s loyalty to this type of investment is also surprising as they accept lower return on investment. In order to protect their investment, we must then ensure that these companies will not take advantage of this. To address this challenge, extra-financial rating agencies were created to control this market. I think this is a way to provide feedback about the measures adopted by a firm in term of social responsibility, however we can not assess the relevance of the tool (e.g.: to analyse the sustainability) and information used to analyse, as well as criteria or values considered are not always available. How investors can be sure of the respect of their own values when they subscribe to one of these funds?
Ethics and Morality are personally defined. It can not be classified or measured, and therefore you can not ask someone to assess the effectiveness or the social responsibility of a company. Moreover, fewer information is available from the banks about such funds, which can not enable a potential consumer to make an enlightened choice (How can the investors know what is really included inside?).
To conclude, I am a little sceptical regarding the socially responsible funds and also afraid of the possible hypocrisy of some firms. However, accordingly to my own set of values, if I were to choose between two firms with similar financial results, I would choose the more socially responsible company.