Ethical/Socially Responsible Investment: Towards an Ethics of Investment

Resources »Eapr »East Asian Pastoral Review 2010 »Volume 47 2010 Number 3 »Ethicalsocially Responsible Investment Towards An Ethics Of Investment

Patrick Chilambwe

Patrick CHILAMBWE is currently a PHD candidate in theology, specializing in theological and business ethics in Leuven. He finished his seminary formation in 1992, ordained in 1994, worked in various capacities such as curate, parish priest, youth chaplain, diocesan justice and peace coordinator, and vicar general in the Diocese of Ndola, Zambia, Africa. He earned his MA in Theology and Religious Studies and Advanced Masters in Theology and Religion; he also went for business studies at a local university where he obtained an MBA.




Ethical/socially responsible investing (E/SRI) is a strategy for investment that concatenates financial objectives with others like the ethical, social, and environmental issues. E/SRI differs radically from mainstream investment which focuses exclusively on financial risk and return. It is motivated by a conviction that economics or business is a human construct and not purely based on immutable laws like the laws of physics. It also posits that the way one invests one’s money to some extent determines the kind of world in which one lives. Investments are not value-free. This article traces the concept, development, and practice of E/SRI. It aims to challenge Christians and believers that evaluating the impact of their investments is an integral part of evangelization. The Christian message has also to be heard in corporate boardrooms just like any other areas of life. E/SRI encourages wealth creation practices that foster sustainable development through the power of responsible and active owners who adhere to environmental stewardship, good governance, and social justice.


he advent of corporate social responsibility and ethical/socially responsible investing has led to increased awareness about consumer, corporate, and investor responsibility. A number of trends can be cited. For example, ethical/socially responsible investments and products have been on the rise over the past decade even though consumer demand is largely a function of price, quality, and place or convenience. A marked rise in responsibly produced products (e.g., fair-trade products) has been recorded in many countries especially in Europe and America.1 Many today also seem willing to buy responsible products. An increasing number of companies have started to talk about corporate social responsibility in their value chains and even coming up with respective ethical codes of conduct.2 The ethical appeal has led some big corporations to acquire businesses associated with responsible business and sustainability. There has also been a heightened interest in an ethical corporate image. In other words many companies are worried about negative publicity especially with regard to having lax ethical behavior. This has resulted in the recognition of the business case for corporate and investor responsibility, i.e., incorporating responsible environmental, social, and corporate governance factors can minimize business risk. While this scenario gives some hope, stakeholders are still concerned about the behavior of some businesses as responsibility and accountability in business go beyond good impressions or a publicity stunt. It entails a fundamental reform of the conception of wealth, its creation, and impact. Globalization, liberalization, and deregulation have broken down national borders and economic barriers, fostering international commerce and trade. This has resulted in a trend of off-shoring jobs from Western countries to less developed parts of Asia, Africa, and Latin America. While this trend might be termed praiseworthy by some, a critical look at this practice reveals that it is basically motivated by the quest for profit maximization due to the low cost of labor, huge tax rebates, lax labor, environmental laws, etc., in those regions. Many of the investors involved espouse the tenets of mainstream investment driven by neoclassical economics and especially its arm of the new finance theory (NFT) which regards economics as a pure value-free science.

Today wealth creation is steeped into many quagmires but here we cite a few. The first major problem with modern corporations is the craving for short-term profits.3 This leads many companies to see their only purpose as maximization of shareholder wealth. No wonder some companies sell anything that can bring them revenue without regard to the impact on the people and the environment. An example here is the arms trade where huge quantities of weapons have been exported to unstable areas or to despotic regimes, thus igniting civil and armed conflicts. Also, some pharmaceutical companies have resisted calls to reduce the price of life-saving drugs all in the name of profit.

Secondly, there is the phenomenon of exclusion and dehumanization—billions of people live in dire and excruciating poverty characterized by, but not limited to, child poverty, incessant work pressures, and modern slavery.4 Many migrant, casual, and informal workers, etc., are subjected to atrocious working conditions. Thirdly, some multinational corporations have impacted local economies negatively due to practices such as lobbying, aggressive tax avoidance, tax evasion, transfer pricing, etc. Fourthly, we are living in an ever more egoistic and individualistic world. Possessive individualism,sometimes called extreme individualism, also involves personal aggrandizement to heroic proportions as "it encourages us to live according to a myth of complete independence and self-sufficiency."6 Although much capital has been generated it has not been invested where it is most needed, i.e., where investments can ameliorate human suffering. According to the statistics of wealth and income, much of the world’s wealth is concentrated in very few hands. Fifthly, today some areas have been subjected to the negative impact of extractive industries such as oil, mining, etc. These practices have not only polluted the environment but have also endangered the livelihood of people. Related to this issue is the environmental crisis largely linked to anthropogenic causes driven by industrial practices as well as consumption patterns. Although some argue that the crisis is a gross exaggeration propagated by those with vested interests, others regard it as a certainty. As one author put it:

For many people around the world the environmental crisis is already a matter of survival, for themselves and their children: for the millions of people in the Sahel region in Africa whose degraded lands will no longer support their livestock and crops; for the residents of Chernobyl in the Ukraine dying of cancer after a nuclear disaster which the industry had always said could not happen, and the sheep farmers in the lake district who still cannot sell their sheep eight years after the accident; for the land Dayaks and nomadic Penans of Sarawak in Malaysia whose ancestral home, the million-year-old tropical forest is being systematically and greedily cut down to be burnt as disposable chop sticks or waste construction materials in incinerators in Japan.7

The present environmental crisis spawns climate change and global warming, pollution (depletion of the ozone layer, water pollution, soil pollution, domestic and industrial waste pollution), soil erosion and deforestation, and species extinction. Varying, and often contentious, variables are posited as causes of environmental crisis. Paul Ehrlich, for example, explains the crisis from the point of view of the population explosion.8 Robin Attifield proposes the pursuit of progress as the cause of the crisis.9 Others blame the economics of growth for the crisis.10 Micheal Northcott argues that the "environmental crisis is intricately connected with the human crises of moral ecology and unemployment, and that the demise of economic justice and moral purposiveness in the global order is directly related to the increasing pace of environmental breakdown."11 Lastly, individuals operating in corporations are confronted with many challenges especially in the area of personal morality and beliefs as these relate to the commitment towards doing what is right in organizational settings. One person reminisces that:

There was a single trait common to denizens of the back row, though I doubt it occurred to anyone: they sensed that they needed to shed whatever refinements of personality and intellect they had brought with them to Salomon Brothers. This wasn’t a conscious act, more a reflex. They were the victims of the myth, especially popular at Salomon Brothers, that a trader is a savage, and a great trader is a great savage.12

Ethical/SRI may not be a panacea for all the ills replete or implicit in the neoclassical economic dispensation. It nevertheless offers another view of doing business based on sustainability, social justice, values, and responsible stewardship. This article aims to explain the concept, development, and the practice of E/SRI and how Christians and other people can use it to influence wealth creation in a sustainable way. This paper has six parts. Part one addresses the significance of E/SRI. It gives a number of names used to refer to E/SRI. The second part traces the historical development of E/SRI. It demonstrates that E/SRI was initiated by faith-based organizations that did not want to invest in harmful products and industries. Today, E/SRI has become almost mainstream but there is still a need for the Christian voice to be heard even in wealth creation by engaging with corporations. Part three is about the financial performance of E/SRI funds and products. Although the debate still rages, many studies show that E/SRI may not hurt financial return. Part four deals with the applications and strategies. The ethics of investing issue is dealt with in part five while part six is about the implications of E/SRI. The article concludes that business should not just be about shareholder wealth maximization but also consider other important issues. Wealth creation is value-laden.

What Is Ethical/Socially Responsible Investing?

Ethical/SRI has evolved over time and today it is moving from the periphery to mainstream of investing practices. It differs from the mainstream investment motivated mainly by neoclassical economics, and especially the arm of this school known as new finance theory (NFT). It is postulated that the NFT "tells us what is instead of what ought to be."13 Some commentators think that "if finance theory is purely technical, however, and concerned only with means and not ends, then perhaps we should look elsewhere for the guidance that would make the world ethically a better place."14

Although there is a plethora of definitions15 it is commonly understood as "a set of approaches which include social or ethical goals or constraints as well as more conventional financial criteria in decisions over whether to acquire, hold or dispose of a particular investment."16 For example, the Responsible Investment Association of Australasia (RIAA) states that:

Responsible investment is an umbrella term used to describe an investment process which takes environmental, social, governance or ethical considerations into account. This process stands in addition to (or is incorporated into) the usual fundamental investment selection and management process. There are a range of terms used today to describe the products or services available for people who want to invest in live with their values. Many of these terms will be familiar such as ethical investment, green investment, sustainable investment, socially responsible investment, clean technology investment or "SRI". RIAA uses responsible investment as the overarching term to refer to the "family" of products and services which take environmental or ethical issues into account.17

The terms that have been used to refer to ethical/SRI have undergone a dramatic change which reflects the kind of issues at the center of the practice. But what is noteworthy is the uneasiness about the ethical tag. Some commentators opted for terms other than "ethical" because it gives the moral high ground to the advocates of such investments. For example, the Allen Report claims that "indeed the values-based language that is commonly used may be inhibiting broader understating of the purpose and performance of this form of investment."18 This report postulates that "‘ethical’ can imply that an advocate has the ‘high moral ground,’ and the term connotes a philosophical message and technique that may be obscure to some."19 It claims that "the issue of social responsibility is largely a moral one and hence what may be acceptable to one investor may be totally unacceptable to another."20

Ironically, even using such terms as ‘socially responsible’ might imply other investments are the opposite—irresponsible. But the nomenclature evolution will continue to spawn a lot of debate. That is why some people have suggested that "questions regarding abstract definition or choice of which term to use, though sometimes of significance, are probably of less importance than developing an understanding of the range of practices which have come to be associated with the use of the terms."21

Table 1: Evolution of Nomenclature


Ethical Investment

Socially Responsible Investment

Sustainable Investment/Green Funds

Responsible Investment


Before 1970s


1990s into the 21st Century

2006 onwards


Ethical Values/ Religious Beliefs

Political Issues; Human Rights




Main Players

Religious Organizations

Individuals and Groups

Retail Investors


Institutional Investors


Main Strategies

Screens: Negative and Positive with Extra Emphasis on Exclusionary Screens

Shareholder Advocacy

Inclusion and Best-in-Class


Geograph-ical Area

Predominantly USA

USA, UK, Europe

Doted all over the Globe


Source: Céline Louche22



NB: The dates should not be taken as clear cut since some terms such as socially responsible investing are still being used today, e.g., by the USA social investment forum.

The Development of Ethical/SRI

The questions about the interface between money and morals have always been part of commerce from time immemorial. There are many examples of religious teachings on wealth and its creation in many religious writings that include Judaism, Christianity, Islam, etc. However, five phases of the development of ethical/SRI can be identified.

The Early Foundations or Roots

Ethical/SRI started as an initiative of religious communities (Society of Friends or Quakers and the Methodist Church) that avoided what they regarded as ‘sin stocks,’ namely, alcohol, tobacco, gambling, weapons, etc. These constituted companies whose products were incongruent with the basic tenets of their faith. One of the people who inspired the early foundation and adoption of ethical/SRI was John Wesley (1703-1791) through his teaching, especially as contained in the sermon on wealth entitled "The Use of Money."23 The crux of the sermon is that people’s relation to money should be based on stewardship rather than proprietorship. He did not see wealth as evil in itself but it depended on how one used it as "the fault does not lie in money, but them that use it. It may be used ill ...but it may likewise be used well."24

Wesley outlined his teaching in three theses. The first is ‘gain all you can’ as "we ought to all we can gain without buying gold too dear, without paying more for it than it is worth. But this is certain we ought not to do: we ought not to gain money at the expense of life; the expense of our health."25 The first thesis is an injunction against gaining at the expense of one’s health (both physically and spiritually); without cheating or stealing from someone—businesses involved in illicit activities are the subject matter here; or without hurting our neighbor in his body—dealing in harmful and hazardous things that damage health. The second is ‘save all you can.’26 This is an advice towards good management of the monetary and other resources an individual possesses; it is an injunction against reckless spending and living only for the moment. And the last is ‘give all you can.’27 This thesis is about generosity and not hoarding possessions that one has accumulated even if they serve no purpose at all. The basis of giving is that human beings do not own anything since they are merely stewards of God’s creation. The religious investors would come to articulate many of the issues that Wesley talked about.

Near the beginning of the twentieth century, in 1928, the first ethical mutual fund, Pioneer Fund, was launched by Phillip Carret. It was designed to cater for the investment needs of mainly evangelical Christians who wanted to avoid sin stocks.

Modern Roots: Paradigmatic Challenges of the 1960s

Ethical/SRI in its present form and practice emerged in the 1960s predominantly pioneered by church groups, universities, and civil society organizations in the USA.28 It was reinvigorated by the paradigmatic challenges of the late 1960s and early 1970s. A combination of such forces as the civil rights movement, ethical consumerism/consumer activism, rising consciousness in environmental issues, and shareholder advocacy (against the Vietnam War and apartheid in South Africa, etc.) all came about in the same era. In the 1990s when some of those contentious issues had gone, environmental issues came to the fore due to a number of environmental disasters (Bhopal, Chenorbyl, Valdez, etc.). Other issues such as human rights, corporate governance, globalization, sustainability, etc., have all in more recent years become more pronounced.

This period is represented by the emergence of E/SRI ethical funds, organizations, and ancillary groups.29 Among the earliest ethical funds were the Pax World created in 1971 in USA and Provident Stewardship Unit Trust in 1984 based in UK. Support organizations include the Interfaith Center on Corporate Responsibility (ICCR) formed in 1971 in USA; the Social Investment Forum (SIF) in the USA in 1980; the UK Social Investment Forum (UKSIF) in 1983— the UKSIF changed its name to UK Sustainable Investment and Finance in 2009; and the Ecumenical Council for Corporate Responsibility (ECCR) in UK. Other similar organizations like EUROSIF, Association for Sustainable and Responsible Investment in Asia (ASrIA), Social Investment Organization of Canada, Responsible Investment Association of Australasia (RIAA) followed later. The pioneering professional rating agencies are the KLD Research and Analytics (1988, USA); and EIRIS (UK, 1983). This period also marked a shift from religious issues to political activities, e.g., the lobbying of corporations took center stage. The approach that characterized E/SRI was quite confrontational.

Consumer activism campaigns were driven by the likes of Ralph Nader and others, notably Saul Alinsky. A remarkable illustration or archetype is Campaign GM (General Motors) and the publication of his book, Unsafe at Any Speed,targeted at the safety of the USA manufactured vehicles.30 He bemoaned what he saw as negligence by automobile makers at that time as "a great problem of contemporary life is how to control the power of economic interests which ignore the harmful effects of their applied science and technology. The automobile tragedy is one of the most serious of these man-made assaults on the human body."31 Nader contended that building safer cars was not only possible but that it could save many lives and serve a lot in terms of unnecessary damage to property and limit environmental pollution.

While an amalgamation of many events played a role in shaping the ethical/SRI movement, the Vietnam War and the South African issues were especially significant. These two events acted as the springboard for many ethical/SRI actions. Thus, they can be viewed as a watershed or defining moments in the history of ethical/SRI and especially shareholder advocacy.

The negative impact of the Vietnam war, which started in 1965 and only came to an end in 1975, raised with urgency the need to scrutinize investments using moral criteria and it thus acted as a real impetus to the organized SRI movement in America. Religious groups and universities could not just sit and watch their money being used to wage a war they felt was unjustified and in many ways injurious to the vulnerable and damaging to the environment.32 This made these people grapple with two issues: the first was keeping stocks in companies manufacturing war materials or supplying them; the second was whether it was ethical to divest. The ensuing general outrage towards companies involved in producing chemicals used in waging the war resulted in the formation of Pax World Fund by the Methodists. This was to provide an alternative fund to accommodate those that wanted to avoid investments in companies or investments that dealt in supplies for the Vietnam War.

The racial policy of apartheid in South Africa came to prominence after the Sharpeville massacre in 1960. This triggered an international uneasiness about investing in South Africa. The efforts coaxing the government to abandon the apartheid policy fell on deaf ears.33 In the 1970s and onwards there were more efforts by anti-apartheid campaigners that contributed to its dismantling in 1994. The invitation of Reverend Leon Sullivan to join the board of General Motors was later going to be seen as momentous because of the huge influence that the "Sullivan principles"34 played in shaping the SRI debate. Due to the inspiration from the Sullivan principles several organizations, states, individuals, etc., mounted political and economic pressure against companies and countries doing business with apartheid South Africa. While the ethical/SRI efforts alone did not bring an end to apartheid, they did focus persuasive international pressure on the South African business community as well as the government with regard to its racial policy. These efforts resulted in the dismantling of Apartheid.

Transition Period: Environmentalism

The period of the transition of ethical/SRI happened in the 1980s and early 1990s when some of these contentious issues had passed or almost gone. Environmental issues came to the fore as the 1980s witnessed a number of environmental disasters.35 This period heralded an era characterized as less confrontational towards sustainability and cooperation. The number of social rating agencies and consultancies on CSR issues in this period increased. A notable example is the Domini 400 Social Index launched in 1990.

However, the early work of such people as Aldo Leopold and Rachel Carson had laid the foundation for corporate environmentalism. Aldo Leopold’s Sandy County Almanac, published in 1949, brought to the fore the need for a land ethic.36 He came up with the concept of the biotic community which was based on the interrelatedness of all forms of life on earth. Silent Spring by Rachel Carson unmasked the hazards and threats of industrial chemicals especially DDT to the natural environment.37 She questioned the indiscriminate usage of pesticides on nature and asserted that modern science, if unchecked, was capable of destroying in a very short period of time life forms that have evolved over a very long time.38 The pervasive use of chemicals does not just endanger insects and other life forms but that of human beings as well as there is now fear that the environment may be poisoned to a point that human beings will be extinct in the same way that earlier life forms disappeared.39 She believed that modern progress should not come at the expense of environmental damage and degradation. Therefore, technological advancement and care for nature were not mutually exclusive. She advocated for the responsible use of power and knowledge.40

The environmental movement gained momentum at this stage as already in 1970, the first Earth Day was celebrated. In 1972 the representatives from various governments convened at the Stockholm conference on environmental issues. This conference was the first major one about the environment held under the auspices of the United Nations conference: The United Nations environment programme (UNEP) was formed as the outcome of this meeting. The 1972 views from the Club of Rome’s book, Limits to Growth, argued for a recognition of the finiteness of material resources.41 The crux of the argument was that limitless consumption cannot go on forever in an interdependent world because the resources are not inexhaustible. The subsequent decades witnessed a number of environmental pollution and degradation that have made the case for the need for corporations and stakeholders to exercise environmental responsibility. Some highlights for environmental concern were the Brundtland Report of 1987 on sustainability and the 1997 Kyoto Protocol on climate change. In the 1990s ethical/SRI focused more on environmental issues. This period also witnessed the coming on the scene of ‘green funds’ in some countries but especially in Europe. Many of these green funds somehow departed from emphasizing the traditional methods of negative screening and instead concentrated on encouraging companies of the future—especially those engaged in the development and production of renewable energy and clean technologies.

This time environmental issues have become an important topic in many respects. Environmental matters like climate change, global warming, depletion of the ozone layer due to human invent-ions and interventions seem to be taking the center stage. A new term also that has been associated with corporate environmentalism is "eco-efficiency." More than pollution that concentrates on the reduction of harmful outcomes eco-efficiency focuses more on inputs. Its strategies "run the gamut from energy-efficiency retrofits to the use of recovered and recoverable materials to what has become known as "de-materialization."42 This refers to using fewer materials in manufacturing and packaging. These and other environmental issues are still an integral part of the ethical/SRI agenda and will likely remain there.


The beginning of the 21st century saw a professionalization of the E/SRI field and its rapid worldwide expansion. This entailed abandoning the activist approach for a more commercially acceptable one. E/SRI started winning the recognition of mainstream and professional investors. The recurring theme in this period has been sustainability. In the UK pension funds were required to show the extent to which they incorporate SRI issues—environmental, social, corporate governance (ESG) and social, environmental, and ethical (SEE)—into their portfolios. Later other EU countries followed this trend which has also been visible in other regions such as Asia.

This period was characterized by an increased involvement by institutional investors. This resulted in the adoption of the best-in-class strategy: no industries are entirely avoided under this method. Instead emphasis is placed on seeking out the best in a given sector or industry. Companies in respective industries are rated on positive ranks in the sectors (those that demonstrate good standards will be recognized) and on a sustainability scale. It is hoped that this criterion will promote financial and social performance; it might also stimulate competition within industries to adopt sustainable practices. The implementation of the best-in-class strategy has been helped by disclosure and reporting requirements about ESG factors. The Global Reporting Initiative, for example, has advocated for reporting on such issues.

Mainstreaming of the Field

The mainstreaming of responsible investment has been the case during the first decade of the 21st century. A momentous milestone has been the conception and launching of the UN Principles for Responsible Investment (UNPRI) in 2006. This initiative brings together institutional investors and asset managers who desire to incorporate ESG factors in their portfolios. To date UNPRI has more than 400 largest institutional investors and asset managers representing $15 trillion under management. Today ethical/SRI is found and practiced in almost all the continents although with varying intensity. There are many ethical/SRI funds and products all over the world. Places like Asia have seen the launch of several ethical/SRI funds and products.

Financial Performance: Does Virtue Pay?

Ethical/SRI investments have experienced a phenomenal growth in many parts of the world. Europe saw a 150% increase in ethical/SRI funds between 2002 and 2007, i.e., 447 funds. The market of ethical/SRI investments is estimated at €2.665 trillion accounting for 17.6% of total European funds under management.43 In the USA, assets under management (AUM) are estimated at $2.71 trillion, i.e., 11% of the $25.1 trillion of total AUMs. This represents an increment of 325% since 1995. Considerable research shows that generally social and environmental screening does not hurt a fund’s financial performance.44 Although the arguments over the financial performance of ethical/SRI funds and products continue to rage, many commentators believe that ethical/SRI fosters a stable and responsible ambiance for business.


Several ways of applying E/SRI practices are available to both institutional and individual investors. For purposes of simplification we can classify these into direct and indirect shareholdings. Direct shareholdings or the Do-it-Yourself approach are investments made under the name of a given investor—individual or corporate. The Do-it-Yourself method entails finding a prospective investment vehicle by oneself and monitoring it. The advantage of this is precision. But it also gives one a lot of work of monitoring the portfolio. This approach also affords the said investor the privilege of receiving dividends as well as other shareholder rights like voting at the AGM. Indirect shareholdings are those made in other investment intermediaries like ethical mutual funds or unit trusts, pension funds, banks, building societies, insurance companies, etc.

Ethical mutual funds and trusts offering specific E/SRI financial products exist in many countries around the world. But which ever method is used entails having information. There are several information services that provide research and ancillary activities with regard to ethical/SRI.


Three strategies are commonly used in ethical/SRI, namely, screens (positive or negative, and others), shareholder advocacy, and community investing. But due to the evolving nature of E/SRI many other subdivisions of strategies may be found.


Screening involves the exclusion and inclusion of organizations deemed to be unethical or ethical in their business operations.

Negative screening (Avoidance/Exclusionary) is an offshoot of the convictions of early religious investors who believed that it was wrong to benefit from certain products, services, and industries. Since investing gives financial power to corporations, it is necessary that one scrutinizes how their money is working; i.e., that it is not being used to directly assist certain industries that are questionable and hazardous to society. Negative screening aims at avoiding investing in the shares of certain corporations whose products (services) or practices conflict with the values of the investor. The traditional ‘sin stocks’ include alcohol, tobacco, gambling, and weapons but the list of exclusions has continued to expand reflecting the current trends. New issues that have been attracting exclusions are mainly based on the abuse of human rights, animal testing, environmental pollution, etc.

Positive screening (Affirmative or supportive) by contrast identifies and supports companies that not only project a good future income stream but also that deal in products and services that account for a sustainable economy and the world—what are called "leading-edge companies." Companies that receive positive screening are associated with the following practices: environmental protection, pollution control; conservation and recycling, safety of products and security in work premises, ethical employment practices, renewable energy, clean transportation, energy conservation, natural food, etc.

Shareholder Advocacy/Engagement

Shareholder advocacy does not necessarily exclude, include, or prefer companies but rather the investor (or representative) will actively encourage companies to adopt ethical, social, and environmental factors. It encourages corporations to realize that profit is not diametrically opposed to issues like the social, environmental, and ethical. Although this strategy is getting recognition even in corporate circles, it is not without critics. Some people think that the role of shareholders is simply to remain and wait for the profits rather interfere in the profit maximization projects and programs of the company. However, the power of this strategy has been demonstrated through various initiatives by advocates like the ICCR (Interfaith Centre on Corporate Social Responsibility), ECCR (Ecumenical Committee on Corporate Responsibility), and others. These faith- based groups use the power of shareholder advocacy to foster corporate reform. There are, however, many tactics used in shareholder advocacy. The main vehicles are dialogue, shareholder resolutions, proxy voting, and divestment.

Community Investing

Community investing, also known as mission-related or social (socially directed) investment, entails putting one’s investment in community projects but not necessarily forgoing profit concerns.45 Although some community investors may be willing to take a lower than market rate return just to further their concern—they instead get a social, ethical, or environmental dividend. It is "an investment strategy in which investors and lenders—either institutional, such as colleges and universities, or individuals—direct capital to communities that are underserved by traditional financial services firms."46 This is done throughcommunity development financial institutions (CDFIs) such as community development banks (CDBs), community development loan funds (CDLFs), community development credit unions(CDCUs), community development venture capital funds (CDVCFs), and many others.47 It is argued that CDFIs "help to revitalize a community, alleviate poverty, empower individuals and families, and provide access to capital for those traditionally confined to economic sidelines."48 One of its aims is to empower the economically disenfranchised members of the community.

The Ethics of Investing: Is the E/SRI ‘Ethical’?

Some commentators say that there is nothing ethical about ethical/SRI as it is a fad or just another market segmentation technique. This argument is based on moral relativism or multifarious ethics given that sometimes investment policies are incoherent and subjective.49 This is mainly due to the lack of standardization in the field with regard to definitions, issues, ethical screens, etc. Some also think that using the ethical tag confers upon proponents some sort of moral "high ground" and discourages some people. But this group fails to distinguish between aesthetic, egoistic, and ethical/SRIs.

The moral case of ethical/SRI rests on the conviction that investing is carried about by people and that, therefore, any human activity has ethical ramifications. The ethics of investing arguments can be generally classified into two camps: investor integrity and responsibility towards others.

Investor integrity or moral purity approach is based on consistency of life and values. Simply, it refers to practicing what one preaches. Thus, even having a passive shareholding implies some form of support for such a venture whether tacit or otherwise. Those who espouse consistency mainly use avoidance/negative screening to avoid certain businesses or products. For example, the Ave Maria mutual funds and Aquinas funds do not invest in ways that violate core teachings of the Catholic Church (pro-life and family values).50 Amana Mutual Funds invests according to Islamic Principles (no riba orusury, alcohol, pornography, gambling stocks and bonds, also avoid fixed income securities). However, this approach is criticized, as it seems to lump together all companies associated with bad practices. This means that it does not take enough notice of good areas that can be supported. Some people think that just avoiding or divesting from a company may not go far enough to bring about a better world. Some unscrupulous people may even take advantage of the divestments and instead put in their money.

Investor responsibility (moral effectiveness argument) towards others is based on avoiding unnecessary harm which is the basic moral minimum. It views shareholders as owners with certain responsibilities rather than just as investors or speculators. This approach goes beyond the integrity one has as it utilizes more of the supporting screens and engagement. It assumes that there are no 100% perfect companies.

Implications of Ethical/SRI

Ethical/SRI brings some distinctive characteristics to the debate and the actual practice of wealth creation. The way one looks at or perceives reality will to a large extent determine one’s relation to it. What has been lacking in neoclassical economics and also to some extent in the literature from ethical/SRI commentators is the recognition of the fundamental reason for wealth and its creation. Responsibility in wealth creation is an important subject for Christians. Christians and people of faith assess companies not only from the perspective of their products or services, profit, and efficiency, but also from their impact on human dignity and environment. The Christian challenge is to "ensure the just distribution of the costs and benefits of economic activity, supporting sustainable community and preserving the integrity of creation. The promotion and protection of human rights—civil, political, economic, social and cultural—are minimum standards for all social institutions, including companies."51

Distinctive Characteristics of E/SRI

a) E/SRI encourages a long-term perspective of investing— even though much mainstream investing is redolent of short-term-ism. It also encourages accounting for environmental, social, governance (ESG), and ethical factors that are not typically accounted for by the mainstream market.

b) E/SRI looks at the broader view of returns—ethical/SRI does not just limit value to profit for the shareholders but also the long-term impact of companies on society and environment. This is of critical importance to many less developed areas of the world that are hosting industries that emit hazardous chemicals polluting the environment and endangering the livelihood of the people.52 Ethical/SRI investors can reign on such corporations to behave responsibly and not just focus on financial profits. A number of people are today bearing the brunt of investments due to the negative externalities.

c) It stimulates change towards sustainability within corporations by encouraging management and workers to embrace CSR and corporate transparency. Through the aegis of E/SRI, several organizations, that encourage corporate disclosure not only about financial statements but also about other issues like the social, ethical, and environmental ones, have been launched. Though voluntary, these institutions urge members to take some responsibility and accountability. Examples include the benchmarks such as AA1000 accountability and SA8000 as well as principles like the Ceres, Caux Round Table, Global Sullivan, etc.

Scarcity and Abundance

Ethical/SRI seeks to generate both financial return and social dividends. It thus steers investments towards the productive and socially beneficial use of capital. This resonates with the biblical message of where abundance is seen as a blessing (see Prov 10:4; 22:2) and is emphasized as opposed to the scarcity view as found in neoclassical economics (economic goods should be scarce; cf. the water/diamond paradox). A certain threshold of wealth is needed for decent living. Ethical/SRI if properly applied can help communities to come to grips with the humane creation and beneficial use of wealth. In the teaching of the Church economic goods are not condemned but their misuse—fraud, usury, exploitation, injustice (see Amos 2:6-7; Mic 2:1-2, Hos 4:1-2). Thus, ethical/SRI directs investments in ways that may avoid instrumentalizing capital. Some people today talk about the ‘resource curse’ in reference to a situation where people in areas endowed with natural resources become victims. There is a tendency among some corporations to focus only on exploitation of the local resources and externalizing profits with no regard for the local people.

Another feature of neoclassical economics is that anything that can be bought can be sold. This leads to the marketization of everything. Ethical/SRI is not against commercial interest but simply tries to emphasize responsibility and sustainability. Catholic social teaching also reminds us that the economy is but just one aspect of human endeavor and therefore that we cannot absolutize the production of goods/services and their consumption and place these at the center of human life.

The Church distinguishes between foundational or instrumental goods (profits) and excellent or inherent goods (human development and community). Neoclassical theory tends to absolutize foundational goods in its perception of the firm. Further the Catholic social tradition sees wealth as a proxy for well-being and not an end.

Beyond Homo Oeconomicus

Ethical/SRI implies a shift from homo oeconomicus (man as an interest maximize) to homo donator/receptor. The concept of homo donator implies that people are not just motivated to seek their own interests. Corporations can, therefore, be envisioned as communities of people working together for the common good rather than just competitors or stakeholders each pursuing their individual self-centered goal. This entails a need for solidarity among people and nature in all endeavors. Wealth cannot be created by one form of capital—it is an amalgamation of the various sources. Social capital or trust is an essential edifice for business and commerce to thrive. Ethical/SRI opens up the possibility of an economy of solidarity or communion.

The Individual Christian Investor

Ethical/SRI simply raises the issue that the way we invest and spend our money fashions the world in which we live. Investing is not value-neutral; it entails responsibility and stewardship. Although an individual may not single-handedly change much of the policies of corporations, especially if they do not have a substantial stake in a given company, they can help draw the attention to issues that need to be addressed. In fact, coalitions of people have done more to highlight some issues that would have gone completely unnoticed. Christians have a responsibility through faith to endeavor to create a community characterized by justice, charity, compassion, and peace. Justice means that believers "stand in solidarity with those oppressed by poverty and exploitation and work to change the structures, policies, and practices that support oppression. It also requires us to evaluate the allocation of income, wealth and power in light of their impact on the poorest and most vulnerable people."53 This can be achieved through active involvement of individual believers, groups, and organizations that let their values have a bearing on wealth creation.


The title of this article seeks to explore whether there is such a thing as E/SRI. Our response is yes there is. Its main contribution to wealth creation, apart from initiating and encouraging the debate on the role of corporations in society, is the recognition that business—despite its enormous impact on human life—is just one aspect of human endeavor and has to be evaluated morally. E/SRI also asserts that business should not solely be motivated by financial profits but also social, environmental, or ethical dividends. Wealth, being a product of various sources of capital, cannot be seen only from the interests of shareholders. It encourages all persons and organizations to scrutinize their investments and also to ensure that they contribute to the Reign of God.

Ethical/SRI is also founded on the conviction that economics is not just a hard science like physics but value-laden one—economic decisions are an amalgamation of human actions. Therefore, we cannot sideline values. The automaticity of the market does not work as people think it does; hence the need to rethink economics. We therefore agree that "a more plausible account of the corporate scandals is a failure of ethical leadership that drives individuals to seek wealth, fame and success regardless of moral considerations."54 Wealth is not a negative thing; but an ambivalent reality. Its goodness or badness depends on how it is created, distributed, and used.

Wealth can be created by promoting the good of the community (improving its productivity) or by retarding the community’s pursuit of genuine goods (setting collusive limits on production to keep prices high, for instance). If wealth is created virtuously, it promotes the authentic development of persons, the prosperity of the firm, and stability of society. If it is based on exploitation or on fraud, then wealth creation is damaging to persons, to the firm, and ultimately to society.55

E/SRI is not anti-business but simply provides a humane platform for wealth creation:



Without detracting from institutional constraint, or a manager’s duty to be profitable and to secure the future of their business, an adequate interpretation of ethics leaves open sufficient room for humanely considered choices. What matters is a ‘‘willingness to do what is necessary, with an insistence on doing it humanely."56


Ethical/SRI investing highlights the need for responsible creation and ownership of wealth.



1. See David Vogel, The Market for Virtue: The Potential and Limits of Corporate Social Responsibility (Washington, DC: Brookings Institu-tion Press, 2005).

2. See Josep Lozano, Laura Albareda, and Tamyko Ysa, Governments and Social Responsibility: Public Policies beyond Regulation and Voluntary Compliance (Houndmills: Palgrave Macmillan, 2008).

3. Peter Camejo, The SRI Advantage: Why Socially Responsible Investing Has Outperformed Financially (Altona: New Society, 2002), 51.4.

4. Kevin Bales, Disposable People: New Slavery in the Global Economy (Berkeley: University of California Press, 1999).

5. See C. B. MacPherson, The Political Theory of Possessive Individualism: Hobbes to Locke (Oxford: Clarendon Press, 1969). MacPherson coined the term "possessive individualism" in reference to the self-interested and utility maximizing behavior which has roots in the philosophical positions of Thomas Hobbes and John Locke.

6. Chuck Collins and Mary Wright, The Moral Measure of the Economy (Maryknoll, New York: Orbis Books, 2007), 83-84.

7. Michael Northcott, The Environment and Christian Ethics (Cambridge: Cambridge University Press, 1998), 1.

8. See Paul Ehrlich, The Population Explosion (London: Arrow Books, 1991).

9. See Robin Attifiels, The Ethics of Environmental Concern (London: University of Georgia Press, 1991).

10. See Donella Meadows, Jurgen Randers, and Dennis Meadows, Limits to Growth (White River Junction: Chelsea Green Publishing Co., 2004).

11. Northcott, The Environment, xviii.

12. James Stewart, Den of Thieves (New York: Simon & Schuster, 1991), 41.

13. Joan Boatright, Ethics in Finance, 2nd ed. (Malden: Blackwell, 2008), 134.

14. Ibid., 137.

15. Ethical investing, Socially Responsible Investing (SRI), Socially Responsible Investment (SRI), values based, social investing, sustainable investment, Responsible Investment (RI), etc. There are many definitions and designations of ethical/socially responsible investing. These definitions have evolved with time while reflecting the dominant trends in the market and society.

16. Christopher Cowton, "Socially Responsible Investment," in Encyclopedia of Applied Ethics, ed. R. Chadwick (San Diego: Academic Press, 1998), 181.

17. "What Is Responsible Investment?" Responsible Investment Association: Australia; available from; accessed 29th December 2009. The Social Investment forum also says that SRI may be called by other tags such as mission investing, responsible investing, double or triple bottom line investing, ethical investing, sustainable investing, or green investing.

18. Socially Responsible Investment in Australia (Sydney: The Allen Consulting Group/Ethical Investment Working Group, 2000), 1.

19. Ibid., 10.

20. Ibid.

21. Russell Sparkes and Christopher Cowton, "The Maturing of Socially Responsible Investment: A Review of the Developing Link with Corporate Social Responsibility," Journal of Business Ethics 52, no. 1 (2004): 47.

22. Céline Louche and Steven Lyndenberg, "Responsible Investment," (Vlerick Leuven Gent Management School, 2009), 8.

23. John Wesley, "Sermon 50: The Use of Money," in The Bicentennial Edition of the Works of John Wesley: Sermons II, ed. Albert Outler (Nashville, TN: Abingdon, 1985), 263-283.

24. Ibid., 268.

25. Ibid., 269-273.

26. Ibid., 273-276.

27. Ibid., 276-280.

28. For the history of ethical/socially responsible investing, see Hal Brill, Jack Brill, and Clif Feigenbaum, Investing with Your Values. Making Money and Making a Difference (Gabriola Island, B.C.: New Society, 2000); Amy Domini, Socially Responsible Investing: Making a Difference and Making Money (Chicago: Dearborn Trade, 2001); Peter Kinder, Steven Lyndenberg, and Amy Domini, eds., The Social Investment Almanac: A Comprehensive Guide to Socially Responsible Investing (New York: Henry Holt and Company, 1992).

29. The development of E/SRI has gone together with the launch of similar organizations around the world.

30. Ralph Nader, Unsafe at Any Speed (New York: Bantam Books/ Grossman Publishers, 1965).

31. Ibid., lxxiv.

32. See Russell Sparkes, Socially Responsible Investment. A Global Revolution (Chichester: John Wiley & Sons, 2002).

33. Karen Paul and Dominic Aquila, "Trade Sanctions, Ethical Investing, and Social Change in South Africa," in The Social Investment Almanac, 26-27.

34. Oliver Williams, ed., Global Codes of Conduct. An Idea Whose Time Has Come (Notre Dame, IN: University of Notre Dame Press, 2000), 388. These principles sought to appraise and document the practices of American companies with economic links to apartheid South Africa. Erring companies were expected to either reform or divest. The principles inspired a number of states and other investors in the USA and elsewhere to come up with social parameters for their investments.

35. For a short history of environmentalism, see Carl Frankel, In Earth’s Company. Business, Environment, and the Challenge of Sustainability(Gabriola Island: New Society, 1998), 37-49.

36. See Aldo Leopold and Charles Schwartz, A Sand County Almanac and Sketches Here and There (London: Galaxy Books, 1949).

37. Rachel Carson, Silent Spring (Greenwich, CT: Fawcett/Crest Books, 1964).

38. Ibid., 17.

39. Ibid., 18-178.

40. Ibid., 244-262.

41. Meadows, Randers, and Meadows, Limits to Growth.

42. Frankel, In Earth’s Company, 39.

43. European SRI Study 2008 (Paris: Eurosif, 2008).

44. Joshua Daniel Margolis and James Patrick Walsh, People and Profits? The Search for a Link between a Company’s Social and Financial Performance (Mahwah, NJ: Erlbaum, 2001) .

45. See 2005 Report on Community Investing Trends in the United States: 10-Year Review (Washington: Social Investment Forum, 2006).

46. Michael Swack, Maximizing Returns to Colleges and Communities. A Handbook on Community Investment (Responsible Endowments Coalition, 2009), 10.

47. Report on Socially Responsible Investing Trends in the United States (Washington: Social Investment Forum, 2003), 24.

48. Ibid.

49. Paul Hawken, Socially Responsible Investing: How the SRI Industry Has Failed to Respond to People Who Want to Invest with Conscience and What Can Be Done to Change It (Sausalito: Natural Capital Institute, 2004).

50. Principles for USCCB Investments, The United States Conference of Catholic Bishops, November 12, 2003; available from http://www.; accessed 15th June 2010.

51. Investment and Engaging with Companies: A Guide for Faith Communities (London: The Ecumenical Council for Corporate Responsibility, 2008), 4.

52. Robert Goodland and Clive Wicks, Philippines: Mining or Food? (London: The Working Group on Mining in the Philippines, 2009). For example, some mining activities have been cited as posing a real threat to food self-sufficiency in several places that include the Philippines. This report indicates that the country which used to produce enough rice for local consumption is now one of the world’s big importers of the commodity.

53. Investment and Engaging with Companies, 4.

54. David Knights and Majella O’Leary, "Leadership, Ethics and Responsibility to the Other," Journal of Business Ethics 67 (2006).

55. Helen Alford, et al, eds., Rediscovering Abundance. Inter-disciplinary Essays on Wealth, Income, and Their Distribution in the Catholic Social Tradition (Notre Dame, IN: University of Notre Dame Press, 2006), 1.

56. Johan Verstraeten, "Business Ethics and Personal Moral Responsibility," in Business Ethics. Broadening the Perspectives, ed Johan Verstraeten (Leuven: Peeters, 2000), 97.

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