Socially responsible investing, also known as socially-conscious or ethical investing, describes an investment strategy which seeks to maximize both financial return and social good. In general, socially responsible investors favor corporate practices that promote environmental stewardship, consumer protection, human rights, and diversity. Some (but not all) avoid businesses involved in alcohol, tobacco, gambling, weapons, the military, and/or abortion. The areas of concern recognized by the SRI industry can be summarized as environment, social justice, and corporate governance (ESG).

Socially responsible investing (SRI) is a booming market in both the US and Europe. Assets in socially screened portfolios climbed to $2.71 trillion in 2007, an increase over the $2.16 trillion counted in 2003 according to the Social Investment Forum’s 2007 Report on Socially Responsible Investing Trends in the United States. From 2005-2007 alone, SRI assets increased more than 18 percent while the broader universe of professionally managed assets increased less than 3 percent.[11] As of 2007 about one out of every nine dollars under professional management in the United States is involved in socially responsible investing—11 percent of the $25.1 trillion in total assets under management tracked in Nelson Information’s Directory of Investment Managers.

Research estimates by financial consultancy Celent predict that the SRI market in the US will reach $3 trillion by 2011. The European SRI market grew from €1 trillion in 2005 to €1.6 trillion in 2007.

Ethical investment in the UK

In 1985 Friends Provident launched the first ethically screened investment fund with criteria which excluded tobacco, arms, alcohol and oppressive regimes. Since 1985 over 90 investment funds have launched offering a wide range of investment criteria; both negatively screened and with positive investment criteria i.e. investing into companies involved in promoting sustainability.

Barchester Green Investment also launched in 1985 and is the UK's longest established ethical investment specialist IFA (Independent Financial Adviser) firm link title. According to the Ethical Investment Research Service (EIRIS) GBP 6.7 billion is invested in ethical and environmental investment funds in the UK.

Since 1985 most of the major investment organizations have launched ethical and socially responsible funds although this has led to a great deal of discussion and debate over the use of the term "ethical" investment. This is because each of the fund management organizations tend to apply a slightly different approach to running their funds. The large Dutch insurance group AEGON, for example, run very tightly screened ethical funds whereas the Standard Life and AXA "ethical" funds operate with less strict exclusion criteria.

This variation in the types of ethical and sustainable investment on offer has created considerable growth in the ethical specialist IFA sector with a number of firms now operating.

Government-controlled funds

Government-controlled funds such as pension funds are often very large players in the investment field, and are being pressured by the citizenry and by activist groups to adopt investment policies which encourage ethical corporate behavior, respect the rights of workers, take environmental concerns into account, and generally avoid violations of human rights. One outstanding endorsement of such policies is The Government Pension Fund of Norway, which is mandated to avoid "investments which constitute an unacceptable risk that the Fund may contribute to unethical acts or omissions, such as violations of fundamental humanitarian principles, serious violations of human rights, gross corruption or severe environmental damages."

Many pension funds are currently under pressure to disinvest from the arms company BAE Systems, partially due to a campaign run by the Campaign Against Arms Trade (CAAT).[15] Liverpool council has passed a successful resolution to disinvest from the company,however a similar attempt by the Scottish Green Party in Edinburgh was blocked by the Liberal Democrats

Mutual funds

Socially responsible mutual funds counted by the 2003 Trends Report increased in number to 200 in 2003, up from 181 in 2001, 168 in 1999, and 139 in 1997. Assets in socially screened mutual funds identified by the Trends Report grew by 19 percent, to $162 billion, up from $136 billion in 2001. More than half (51 percent) of this growth is attributed to both newly identified and newly created funds, and 49 percent represents growth in existing assets. In terms of attracting investor assets, socially screened mutual funds grew on a net basis in 2002 while the rest of the mutual fund industry contracted. According to Lipper, socially responsible mutual funds saw net inflows of $1.5 billion during 2002. Over the same time, US diversified equity funds posted outflows of nearly $10.5 billion. According to the Social Investment Forum, socially responsible mutual funds have grown from $12 billion in 1995 to $179 billion, far outpacing the overall growth of mutual funds in the US.

Source: Wikipedia.org