Myth #1 – “Investment
decisions based on values and beliefs reduces your universe of investment
options.”
To answer that question, lets look at how SRI mutual funds select investments.
Like any mutual fund, the manager selects companies based on specific
investment fundamentals, the sectors they operate in, and where in the
world they’re located. For example, the same way a Canadian value
manager may look for Canadian companies that are under-appreciated by
the market, the manager of a global SRI fund may look for companies around
the world that have the potential for long-term capital growth.
The difference between funds with a socially responsible investment element
and those that are not, are the additional tests a company must pass in
order to be included in the portfolio. Depending on the fund manager and
the type of SRI fund, these qualifications change, however each company
must meet specific environmental, social or corporate governance related
guidelines.
When it comes down to it, the way investments are selected for a global
SRI fund and a regular global mutual fund are really not very different.
To make it into a portfolio, each company selected must make the grade
on a long list of financial criteria. The companies that make it into an
SRI portfolio must pass additional tests. In other words, a company is
never selected based on values and beliefs alone.
Myth #2 – “Investments that are managed with an SRI approach
don’t perform as well as regular mutual funds that are allowed to
invest in anything.”
A closer look at the numbers reveals that this is
truly a myth. To illustrate this point, let’s look at the performance
of the Domini 400 Social Index, which tracks 400 US-based companies that
meet certain social and environmental criteria. Since this index was created
in 1990, it has actually outperformed the broader S&P500 equity index.
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