If people support benefiting the environment, corporate governance, diversity, and humane treatment of animals, then they should definitely not put money into funds or stocks of companies that work against these goals. Whatever you pay for, you support. You can get good returns on investments, without helping to fund businesses that hurt the planet, people's health, or the animal kingdom.
Socially responsible investing is a reasonable strategy for investors who would prefer not to benefit from activities that they don't approve of. Some analysts believe that ruling out potential investment areas will hurt investment returns in the long run. But, sector funds, which are far more restrictive than socially responsible funds, usually aren't subject to the same criticism. Even if it was certain that investment returns were reduced somewhat by maintaining a socially responsible agenda, some investors would find the returns acceptable, when they add societal and personal returns on the investment. Consider, for example, a person who has just buried a family member that died of lung cancer brought on by smoking. That person may well view the monetary benefit from investments in a tobacco company as very poor compensation for the knowledge that the company earnings come from the sale of products that addict and kill large numbers of people.
By choosing socially responsible investing options, managers are giving their clients an opportunity to invest in something that is important to them. This is also good from a marketing standpoint, as it may give clients a reason to choose this manager over others that have not taken the time to investigate the consequences of their investments beyond the financial standpoint.
People who invest irresponsibly put a burden on their environment, as well as other people. Investing in environmentally damaging stocks enables these actions to continue, making the situation worse. Choosing not to invest in such is making a statement that these things are not going to become profitable for the business. And, with enough people, it will make them change their practices, moving us toward a better future.
Long-term sustainability planning results in lower costs and environmental impacts for a company. A short-term profit-taking mentality hurts our society as a whole, and does not guarantee the long-term viability of a corporation. This, in turn, has an impact on the success or failure of investments.
While investors may suffer in the short-term by propping up obscure niche brands that cater to a socially conscious sensibility, often incurring higher labor and production costs in the process, the investor who persists with a socially responsible investment strategy over the long term is poised to do well. Why? I would argue that the popularity of socially minded environmental, animal welfare, and other business practices is bound to grow in the future. Along with that, the advent of global warming and other environmental problems, the publicity surrounding the mistreatment of animals, and the PR perks of avoiding infliction of such harm, and the use of "fair trade" practices that support humane living standards for workers in developing countries and other markers of progressive investing have clear, relatively uncontroversial rationales behind them. And awareness of these ethical concerns, and the relevant science, is likely to spread as technology and economic growth proliferate.
More and more people are paying attention to socially responsible businesses, and thus they are more often patronized by people who wish to be green, to conserve resources and energy, and so on. So these businesses are more likely to be profitable. Investing in such businesses is therefore moral and profitable at the same time.
I believe that if everyone chose to make socially responsible decisions in everyday life, all the time, the world would be a better place. Besides, more and more people are becoming socially responsible all the time. So, if investors choose these same decisions, they'll be making money by choosing what's more popular.
Corporations worry about the bottom line, period. If we want to encourage them to be more socially responsible, rewarding them with investment money is very effective. It's a carrot, rather than the stick that holds it.
As long as it's a good, solid investment with potential for growth, it's a wise investment strategy. Most companies that are socially responsible and care about such things as the environment, humane treatment of animals, etc. are ethically above average, and that is something people feel comfortable about connecting with in this era of greed and dishonesty in corporate dealings.
Investors and managers do perform moral actions by investing in socially responsible investing options. However, they do not perform the most "wise" investments, in terms of making money for themselves or their clients, because socially responsible institutions focus more on bettering others, rather than making profits for themselves. This would keep the stock prices down.
Portfolio managers and individual investors undertake the job of making money for their clients. Regardless of their individual morals or beliefs, it is not their responsibility to make socially responsible investment choices. Doing so would undermine the end result for the client. If money happens to be made by socially responsible choices, then that should be considered an extra benefit.
Companies only have to answer to their stockholders in the form of profits. If an individual company decides to apply stricter, self-imposed controls, it will decrease its own profits, thus making it less competitive. If social problems are to be solved, they should be applied all across the board to all companies, so as not to disadvantage individual companies and investors.