The value of managed investment portfolios with at least one aspect of socially responsible investing (SRI) has grown in recent years at a rate faster than all professionally managed assets, as a result of increasing investor interest.  In 2007, assets in the United States with at least one component of SRI were estimated at $2.7 trillion, according to the Social Investment Forum.  That amount represents nearly one out of every ten dollars invested in the U.S., and growing.

Corporate Risk Assessment – even before recent blowups involving shoddy corporate governance and compromised corporate directors, we had been carefully assessing ethical issues.  Regulatory risks rise with corporations that push the permissible limits, or beyond.  Poor corporate ethics may lead to scandals, regulatory fines or management actions not aligned with the interests of shareholders.  In contrast, a corporate culture emphasizing ethical standards can lead to better business decisions and motivated employees.  Studies have shown that environmental and social responsibility is an indicator of improved economic value creation in companies.  In other words, ethical analysis can be one of several factors involved in implementing a prudent investment strategy.

Value Expression –  environmentally and socially responsible investing allows for the implementation of an individual's or an organization's core values.  Ethical investing sends a message to corporations in general, beyond just "green" companies specifically, that investors expect a high standard of corporate responsibility.  Ethical investors believe that advocating a set of principles without putting them into practice is a contradiction, and they commit themselves to putting their words into actions.

Investment Performance –  means that ethical investors tend to be those whose outlook for a better future is cautiously optimistic.  With prudence and patience, investors can avoid the errors so many make by buying investments when they are hot, overpriced "flavors of the month" (with overly optimistic business outlooks) and one can also avoid the "hot money" mistake of selling at artificially depressed prices (in the midst of apparent yet transitory difficulties).  Most often, an extended period of time is needed for an investment, entered into prudently, to appreciate to full value or beyond.  No matter the investment strategy, SRI or not, prudence and patience are virtues necessary for an investor's success.      

© Pennyfarthing Investment Management, L.L.C.