Many investors assume that there is a financial cost to employing social and environmental criteria in investment decisions. However, a growing body of evidence indicates socially responsible investments (SRI) can perform as well as conventional investments. In some cases, they have performed better.
In the US, the Domini Social Index (DSI), an index of 400 socially responsible companies, has outperformed the Standard & Poors 500 on a total-return basis and on a risk-adjusted basis since its inception in May 1990. For current data, visit www.kld.com.
In Canada, Jantzi Research Inc. has created the Jantzi Social Index, an index of 60 Canadian companies selected on social responsibility criteria. The index was launched in January, 2000. The data shows that the JSI index has outperformed its conventional benchmark. For current data, visit www.jantziresearch.com.
The cause of such outperformance is a matter of some academic debate. Some researchers believe that this outperformance is due to investment factors, such as sectors, industries, capitalization or other factors. Others believe that there is a social premium, that socially responsible screening leads to higher returns because of social and environmental factors, such as far-sighted management, higher productivity, lower legal and social liabilities and market opportunities. A full discussion of these issues is available at www.sristudies.org.
An academic study* comparing Canadian SRI mutual funds with conventional mutual funds found that investing in a socially responsible manner has a neutral effect on returns. Moreover, the same study suggests that socially responsible screening may even reduce investment risk.
What is clear is that -- contrary to conventional wisdom -- investing according to social and environmental screening does not mean lower returns. In fact, in some cases, social screening can produce higher returns.
* Asmundson, Paul and Foerster, Stephen R. (2001) “Socially Responsible Investing: Better for Your Soul or Your Bottom Line?” Canadian Investment Review Journal. See http://www.investmentreview.com/archives/2001/winter/social.html