The Ethics of Socially Responsible Investing

Paper Abstract

Michael Monahan, University of Montana

Socially responsible investing (SRI) seeks to hit corporations where it will really hurt, in their pocketbooks. It has served as a means to introduce ethical considerations into the financial world, and create an economic climate that must bear in mind the “costs” associated with unethical or socially irresponsible practices. Unsettling, though, is that with the explosive growth of socially responsible funds over the last ten or fifteen years, (a 1999 survey found that total assets involved in SRI had gone up, from $40 billion in 1984, to $2.16 trillion) there has been a frightening lack of literature addressing the screening and evaluative procedures. In this paper I examine some problems with SRI to better understand the “ethics” involved. Unlike prior research on this topic, I focus specifically on the screening procedures. Through a case analysis of one socially screened fund, I will illustrate the nature of the screening process in relation to one of its larger holdings, then formulate an ethical analysis of the screening procedures and the SRI movement in general. My hope is that this analysis will clarify some of the ambiguities surrounding the ethics of SRI, and help us better understand its place in the new economy.

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