Pension plan sponsors and their advisors are starting to take more notice of the socially responsible investment movement.
Many sponsors and investment professionals wonder why any investor would risk reducing returns by mixing social issues with their portfolios.
It is widely accepted by the skeptics that socially conscious investors would be better off putting their money to work in the best possible investments, then using the profits to support their favorite social causes.
It was also accepted for many years that the world was flat.
Today, there is a strong movement toward the SRI world, and the growth rate for professionally managed SRI investment funds has been running at almost twice the growth rate for traditional funds, according to the Social Investment Forum, Washington.
Many large, participant-managed defined contribution retirement plans have already added one or more SRI fund choices.
Ford Motor Company, Dearborn, Mich., and General Motors Corp., Detroit, are just two of the many companies that offer SRI fund choices in their 401(k) plans.
Growth in the use of SRI funds in defined contribution plans might be even greater if not for the many investment professionals who are still na?ve about socially responsible investing.
I was one of the naysayers myself until I ventured out in search of answers to my own questions about SRI.
Here are the responses I found to some of what I believe to be common fallacies.
Investors will get lower returns if they integrate their values or their faith with their investment portfolios.
This argument is probably one of the most pervasive fallacies of all. The research has provided a surprising conclusionaccording to recent Financial Analyst Journal and Morningstar.com articles, investors do not have to give up return when they invest according to their values or their faith.
My clients are not asking for SRI.
This is the most common objection I hear when I ask investment professionals whether they have considered recommending SRI to their clients. When I ask mutual fund companies whether they have considered offering advisors SRI fund choices, they say advisors are not indicating any interest in SRI.
But the largest U.S. money managers have noticed SRI. The Vanguard Group, Valley Forge, Pa., and TIAA/CREF, New York, both introduced mutual funds for SRI investors during the first half of 2000. At least a dozen new religious investment vehicles were launched between December 2000 and June of this year, compared with only five launches during the previous six-month period.
SRI complicates an already complicated investment process.
To avoid another element of the investment process because it creates more work for the advisor is an unfortunate excuse.
As professionals, we have an obligation to become and remain educated regarding all elements of investment management that can help our clients meet their objectives. We shouldnt be blind to the fact that many investors want to see their money do good for society as well as provide for their lifetime financial needs.
The Social Investment Forum reported that one out of every eight dollars under professional investment management is involved in SRI.
Imagine what this number would be if more investment advisors became more educated about SRI!
