Social Responsible Investment

SRI is a new fashion for investors. In SRI non-financial factors are the basis for considering the profit. It is an ethical conviction for investors in choosing their investing position. According to Bloomberg News, the SRI fund increased by 20% in 2011. It indicate SRI is becoming the new fashion for investors.

The SRI funds have relatively higher initial charges, but since they are quite restrictive about the companies they invested in, they have performed relatively poorer than other types of funds. Another thing is that SRI directly involving in banking industry is a conflict of interest. Because cutting out firms with unfair or unsafe labour and poor environmental records will screen out vast firms banks invest in. there is no guarantee that banking system will do SRI investment without interest conflict.

And how well the SRI can hedge the financial crisis? The SRI invests in companies with restrictive option and profitability is not primary concern of the investment so that SRI cannot perform well compared to other investments. Thus, to what extent can we expect SRI to outperform when the market going down?

In my opinion SRI is a controversial term itself. Social and responsible standard is too restrictive to diversify the portfolio and outperform the market. It is difficult to do both socially responsible and profitable based on narrow investment choice. From a practical prospect, how can you ensure the managers of so-call SRI funds to give up the investment opportunity just because it is not socially responsible, especially when they have done time-consuming and costly quantitative and qualitative analysis? And will the SRI bring about good profitability when the investment choice is so restrictive and narrow and portfolio diversification is so difficult to do?

Why SRI is a fashion when it is nonsense obviously? To answer this question is beyond the financial scope. Like the theory of Global warming promoted by political organizations rather than meteorologist, SRI is a political issue rather than financial one. And also like so-called global warming, SRI is just a point created by politicians from where to expand and diffuse their influence in economy. SRI is an investment? Yes, but just for politicians, not us.