Social Impact Investing

Socially Responsible Investing v2

There has been a lot of interest in the so-called socially responsible investing (SRI) approach to investing. One report I saw [can’t remember source] is that 10% (or $1 out of every $10) is now invested with this philosophy representing north of US$2 trillion.

Almost all of this money to date is invested in what I’ll call “version 1” of SRI (SRIv1). SRIv1 adheres to the philosophy of avoiding investment in companies which violate certain ethical or moral standards held by the investor. It is similar to the supposed philosophy of Google — “don’t do evil.” So SRIv1 investors are refusing to invest in companies which do “bad” things … e.g. gambling, pornography, polluting, manufacturing armaments, bad labor practices, cigarette business, etc. There are many options to choose from … some have a shorter or longer list of these “negative screens.”

Much of the SRIv1 monies have come from charitable foundations and individual investors who have clearer/simpler ways of determining what “bad” is. Unfortunately, it is difficult to find an investment screen which fits exactly with your values. I tried and gave up. And, frankly, while I’m interested in these negative screens, I’m more interested in doing good.

Socially Responsible Investing version 2 (SRIv2)

There is a new emerging class of socially responsible investing opportunities which focus on doing good (vs. not doing bad.) I call these “version 2” types of SRI. That is, investing in ways which help make the world a better place … whether it be less poverty, better environment, better health[care], less war/crime, etc. There are a growing number of companies which enable you to invest your money, earn a return and have your money used to do good. Yes, these are financially viable businesses which have also have a social mission built-in.

One promising category of SRIv2 investing for lessening poverty is in the microfinance (also referred to as microcredit) business. Microfinance starts by providing small loans to poor entrepreneurs to help them build a small business generating profit to both repay the loan and to help themselves out of poverty. Read previous blog entry on this for examples.

I think that SRIv2 while small today has an even larger potential than SRIv1. I think that “doing good” is a superior motivator than “not doing bad.” In many ways, SRIv2 is a double win — you don’t invest in doing bad and you actually do something positive!

Now the challenge is getting out the word on SRIv2 initiatives!

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