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Socially Responsible Investing – Investing for a Cause

With corporate scandals, environment safety issues and human rights cases frequently in the headlines, investors have been increasingly concerned about the products and services associated with their investments.

Such concern has led to the growth of socially responsible investing (SRI), an investment approach which seeks to maximize both financial return and social good by investing in companies that have a good track record with such topics as the environment, social justice, human rights, corporate governance and diversity.  Companies profiting from the sale of tobacco or alcohol, for example, are typically shunned from SRI investment strategies.

Socially responsible investing (SRI) assets grew to $3.1 trillion under management in 2010, up 13% from 2007  when $2.7 trillion in assets were being managed using a core socially responsible strategy, according to the Social Investment Forum.

Socially responsible investors include individuals, and such institutions as corporations, universities, hospitals, foundations, insurance companies, pension funds, nonprofit organizations and religious institutions, which collectively represent the largest and fastest growing segment of SRI investors.

One misconception about SRI that investment managers have sought to clarify is the notion that a socially conscious investment will bring a lower return. Research has shown that socially screened portfolios perform competitively when compared to portfolios that are not screened for social causes.  For example, a 2002 study of international SRI mutual funds found little evidence of significant differences in the risk-adjusted returns on ethical and conventional funds from 1990 to 2001.

There are several approaches to pursue for investors interested in SRI, including:

Green Investing – This approach focuses on companies that are committed to the conservation of natural resources, the production and discovery of alternative energy sources, the implementation of clean air and water projects, and/or other environmentally conscious business practices.  Examples of green investments include buying alternative energy stocks, green energy exchange funds or energy efficient funds.

Ethical Investing – Involves buying only securities that are in line with the investor’s personal views. The investment portfolio contains companies with business practices that the investor believes in. Certain industries, such as gambling, alcohol and firearms, might be excluded.

Community investing – One of the fastest growing areas of socially responsible investing. This approach provides investment capital to communities not served, or under-served  by traditional financial institutions. Community investing gives these communities direct access to credit, equity, capital and basic banking products they would otherwise lack.

Shareholder advocacy — Shareholder advocates will purposely invest in companies with poor social or environmental records, while actively working with the company’s management to improve its practices. These activities may include filing, co-filing and voting on shareholder resolutions that focus on social and corporate-governance issues. They generally intend to improve a company’s policies and practices, encouraging management to exercise good corporate citizenship, and promote long-term shareholder value and financial performance.

Investors interested in socially responsible investing may seek the assistance of a qualified financial advisor, who can evaluate specific investment portfolios or mutual funds based on social, environmental and good corporate governance.

 If you would like to learn more about developing an investment portfolio that reflects your social concerns, please contact your financial advisor.

Mutual funds are sold by prospectus. More complete information about the funds including information on investment objectives, risks, charges and expenses is detailed in the prospectus. Please read the prospectus and consider this information carefully before investing.

Provided by Eddie Link
Meridian Wealth Management
UBS Financial Services Inc.
e-mail: [email protected]

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