Religiously Motivated Investing

Religiously Motivated Investing and the Socially Responsible Investment Community

Religiously motivated investing (RMI) is a rapidly evolving core component of the larger socially responsible investment community. Understanding the contextual nuances of RMI and its placement within this community requires a brief overview of socially responsible investing itself. The term socially responsible investing (SRI) encompasses an investment strategy whereby financial contributions are placed into investment vehicles designed to combine the traditional investment philosophy favoring profit maximization with values-based component-seeking nonfinancial benefits. Such nonfinancial benefits are often referred to as social returns. These social returns vary in scope but may be broadly defined as corporate policies and actions that enhance a socially responsible investor's specific environmental, religious, or social values. It is important to note that such enhancements may or may not have any impact on the profit-maximization component of the socially responsible investment. Therefore, a successful socially responsible investment portfolio will appreciate in value over a specific time period (when compared with an appropriate financial benchmark or to returns from a traditional and similarly situated investment portfolio) while also significantly advancing an investor's specific social values. A quasisuccessful SRI portfolio may earn substandard financial returns but successfully advance an investor's specific social values—a result acceptable to many socially responsible investors. Although socially responsible investing is the most common term for this practice in the United States, the concept is also referred to as ethical investing (primarily in the United Kingdom and Australia), moral investing, or valuesbased investing.

Today, major institutional investment groups such as corporations, hedge funds, insurance companies, mutual funds, pension funds, religious institutions, and universities, along with the environmentally/religiously/socially motivated individual investor, are becoming increasingly involved in SRI. Similar to the traditional investment community, religiously motivated investors take advantage of three distinct investment strategies to advance their investment goals: (1) social screening—the affirmative investment in (or divestment of) companies meeting (or failing to meet) predetermined social investment objectives; (2) shareholder advocacy—a process by which investors choose to initiate discussions with company management, sponsor or cosponsor shareholder resolutions, or boycott company products or services in an effort to induce company management to modify policies in accordance with specific social objectives; and (3) community investment—where investment funds are channeled directly to communities where such resources have been historically scarce with the intention of fostering regional economic development.

At the dawn of the 21st century, the SRI industry claims that more than $2.16 trillion is invested in professionally managed portfolios implementing at least one of the three SRI investment strategies mentioned previously. This figure, touted as representing one out of every nine dollars invested professionally in the United States, grew from $1.19 trillion in 1997 and from $40 billion in 1984. It is important to note that [Page 1815]many scholars remain skeptical of the accuracy of these figures and toward the effectiveness and widespread use of SRI. While many peer-reviewed academic studies demonstrate that SRI earns substandard returns and is merely growing in pace with the traditional investment strategies, other studies demonstrate that SRI is becoming more prominent and that socially responsible investors are increasingly able to achieve desired social objectives while also earning competitive returns as compared with traditional investment philosophies.

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