The Philosophy of Socially Responsible Investing

1971—it was the year the first email was sent, the first Earth Day was celebrated and Pax World launched the first mutual fund to apply broad socially responsible standards to the investment process. Socially responsible investing integrates personal and social values with investment decisions. This approach recognizes the fact that providing capital to companies in effect endorses their activities. In this sense, investing is like voting: each dollar invested represents a vote for the kind of company (and the kind of world) that investors favor.

While many investors want a way to express their environmental and social concerns, few have either the resources or the time to be effective individually. Here is where socially responsible mutual funds play an important role. By challenging companies to meet ethical standards, by monitoring corporate behavior, and by using shareholder voting rights to influence business practices in a positive fashion, socially responsible mutual funds give investors a collective voice in corporate decision making.

There are now 230 socially responsible mutual funds in the United States. (Source: Social Investment Forum). Since 1971, Pax World has been proving that rigorous financial and social standards can work well together. In fact, many of the social criteria that Pax World uses—environmental responsibility and a well-cared-for workforce, for example—can enhance the long-term performance of companies by making them less likely to be the subject of strikes, class-action lawsuits, boycotts, or fines.

A growing number of investors agree. From 1999 to 2001, socially responsible assets in the US increased by 36% and, in 2001, passed the $2 trillion mark for the first time. The 2001 Nelson’s Directory of Investment Managers reported that nearly one in every eight dollars being professionally managed in the US was subject to social screening. (Source: Social Investment Forum).

Next article: Screening companies for socially responsible investments.

Third article: Resources to learn more about socially responsible investing.