
Environmental Encyclopedia 3
Socially responsible investing
The rise of the modern corporation brought with it
new forms of investment, and the growing corporate econ-
omy allowed more people to own shares, or stocks, in corpo-
rations. In 1934, the U.S. Congress created the Securities
and Exchange Commission (SEC), which would oversee
the trading of financial instruments such as stocks. Congress
mandated that all owners, or stockholders, should be able to
vote on company concerns when it stated that, “fair corporate
suffrage is an important right that should be attached to
every equity security bought on a public exchange.”
The political activism of the 1960s, when people
strongly protested issues concerning civil rights, women’s
rights, war, and
environmental degradation
, had rippling
effects upon corporation activity and the development of
SRI. In the 1970s, church groups including the National
Council of Churches, which had stock holdings in major
corporations, began actively using shareholders’ resolutions
to address social concerns. As an offshoot of the National
Council of Churches, an important organization in SRI
was formed in 1972, the Interfaith Center on Corporate
Responsibility (ICCR), which brought together religious
groups to increase shareholder power. One issue in particular
had a profound effect on the development of SRI—the policy
of apartheid in South Africa, which was the forced and often
violent segregation of blacks from whites. In the 1980s,
many shareholders demanded investment tools that utilized
divestment, which eliminated from stock collections all com-
panies that had South African holdings. Shareholders in
some companies also demanded disinvestment, or the with-
drawal of corporate activities from South Africa.
Increased concerns about environmental problems
have led to the development of environmental investing
tools. As early as 1970, an environmental mutual fund called
the Pax World Fund was offered, which used
pollution
control
as one of its standards for selecting companies. (Mu-
tual funds are professionally managed collections of stocks,
shares of which can be purchased and traded.) In March
1989 the
Exxon Valdez
oil spill in Alaska prompted further
development of environmental investing. The Coalition for
Environmentally Responsible Economies (CERES) devel-
oped the
Valdez Principles
, a list of 10 environmental prin-
ciples related to corporate activity. Companies can be rated
on how well they adhere to the principles, and shareholders
have also created resolutions asking companies to adopt the
principles for their operations. These principles include pro-
tection of the environment, sustainable use of natural re-
sources, reduction and disposal of wastes, wise use of energy,
risk reduction, marketing of safe products, damage compen-
sation, disclosure, environmental management, and self-as-
sessment.
In the free market society of the United States, corpo-
rations are set up by law to be responsible to their sharehold-
1309
ers, and the market is governed as little as possible. In a
capitalistic system, maximizing the profits for shareholders
is the main goal of the corporation. As efficiently as this
system has worked to create a materialistically wealthy soci-
ety, the profit-motive corporate structure has also contrib-
uted to some social and environmental problems that were
growing as capitalism moved into the new millennium. For
instance, energy companies can maximize their profits by
producing and selling as much energy as possible. In the
early twenty-first century, the problems of global warming
and
air pollution
were receiving increased attention, prob-
lems that are directly related to the burning of
fossil fuels
,
from which most energy is produced. Thus, the shareholders
of an energy company might benefit from increased produc-
tion of energy, while society as a whole may face new prob-
lems from such activity. Energy companies powerfully op-
pose new governmental regulations such as air
pollution
controls, and there can be conflicts between private and
public interest. That is, corporations desire a market free
from government interference, while the government is the
main tool the public has to regulate large corporations. Some
people, wishing to affect change from within, become what
are known in SRI as activist shareholders, and utilize share-
holders’ rights. Activist shareholders are often in the minor-
ity, and it may take many millions of dollars worth of stock
to be able to pass shareholders’ resolutions in large compa-
nies. In the early twenty-first century, shareholders in some
of the world’s largest energy companies were initiating reso-
lutions on air pollution, alternative energy,
sustainable de-
velopment
, and global warming, for instance.
Socially responsible investing relies upon three main
strategies to further its social and environmental goals: screen-
ing, shareholder advocacy, and community investing. Positive
screening uses various criteria to select companies that have
excellent track records, while negative screens eliminate com-
panies with poor records from investment possibilities. To-
bacco is the most commonly used screening criteria, and other
popular screens include environmental protection, human
rights, employment equality, gambling, alcohol, and weapons
production. Other commonly used screens have been labor
relations, animal testing, community investing, and commu-
nity relations, while specialty screens include issues such as
executive compensation, abortion and birth control, and in-
ternational labor standards, among others.
Shareholder advocacy utilizes the legal rights of share-
holders as owners of companies. Shareholders can influence
corporate operations by direct communication with manage-
ment as well as by shareholder resolutions. These resolutions,
when filed, get published in a company’s proxy statement
and are voted on by all shareholders during the company’s
annual meeting. Although they rarely receive a majority vote,