The Only Guide to Alternative Investments You'll Ever Need: The Good, the Flawed, the Bad, and the Ugly

Chapter 10. Socially Responsible Mutual Funds

Investors can choose to demonstrate their opposition to certain business activities by opting not to buy products or services from companies that they feel are engaging in practices that violate their values, ethics, or beliefs. Additionally, they can decide not to invest in such companies. For example, in the eighteenth century, the governing bodies of several U.S. religious groups would only issue loans to companies that did not distill alcohol, produce or distribute tobacco, or operate gambling facilities.

More recently, in the 1970s, after the global outcry over South African apartheid, many individual and institutional investors sold their investments in any multinational companies doing business in or with that nation. Although economic sanctions against South Africa ended in 1993, investors continued to expand this practice by applying the same moral standards to all companies, wherever they operated in the world.

Today, this values-based approach is referred to as socially responsible investing (SRI). And while SRI is not generally thought of as an alternative investment in the same category as hedge funds or commodities, it represents a thoughtful alternative for many investors.

Defining SRI

SRI has been referred to as "double-bottom-line" investing. The implication is that investments must not only be profitable, but must also meet investors' personal standards. Some investors don't want their money to support companies that sell ...