History of Socially Responsible Investing

History of Socially Responsible Investing


Many investors are now trying to align their portfolios with their personal values and make investments that have a positive impact. Although socially responsible investing may seem like a new phenomenon, its earliest origins date back to the first five books of the Bible...

References to socially responsible investing can be found in the first five books of the Bible, referring to the Jewish concept of justice and fairness (Tzedek). This concept aimed to rectify the imbalance created by people benefiting from ownership. Owners were not only given rights but also had obligations in how they used their possessions. The Jewish law states that investments make us owners, carrying with it the responsibility to use our holdings to prevent immediate and potential harm.

According to Jewish religious figures, holding shares is a form of ownership, and therefore, investors must consider ethical responsibility towards society before investing. This should prevent them from investing in 'immoral' businesses that profit from oil, coal, and gas because their activities have an immediate impact on human health.

Newer roots trace back to the 18th century when in England and America, members of the Quaker religious movement rejected the slave trade. At a Quaker meeting in 1758, members were prohibited from participating in the slave trade – marking the first instance of SRI in its current form.

A later advocate was John Wesley, who led the Methodist movement. In his sermons, Wesley outlined his stance on social investing, advocating not to harm one's neighbor through business practices and to avoid industrial sectors like tanning and chemical production that could harm workers' health. He stated that making money at the expense of someone else's well-being is a sin... His followers eventually abstained from investing in 'sinful' businesses such as those profiting from tobacco, firearms, and alcohol.

Modern Era and the Growing Popularity of SRI

In the 20th century, investors in the United States began to avoid 'sinful' stocks – companies trading in alcohol, tobacco, or gambling. The Boston-based Pioneer Fund (established in 1928 by a World War I pilot) became one of the first funds to adopt SRI principles in 1950. Since its inception, it achieved an average annual return of 12%, surpassing the S&P 500 index. It was better returns with a better conscience.

Avoidance of 'sinful' stocks continued until the 1950s, followed by further development in socially responsible investing, attracting new investors every decade.

The movement gained momentum in the 1960s in the United States due to the political climate and concerns about the Vietnam War. The image of a girl whose back was burned by napalm after her village was bombed remains etched in America's memory. This led to protests against chemical companies... Companies providing weapons for the war were also boycotted.

During that time, socially concerned investors also increasingly sought to address issues of women's equality, civil rights, and labor matters. New movements for civil rights, ecological awareness, and worker rights emerged, raising awareness of social, environmental, and economic issues.

Socially responsible investing also played a significant role in the 1970s in South Africa, where apartheid policies were in place. In 1971, Reverend Leon Sullivan (then a member of the General Motors board) proposed a code of conduct for business in South Africa, known as the Sullivan Principles. However, reports documenting the application of these principles revealed that American companies were not making an effort to mitigate discrimination in South Africa. Due to these reports and increasing political pressure, cities, states, universities, religious groups, and pension funds across the USA began divesting from companies operating in South Africa. From the 1970s to the early 1990s, during the so-called divestment protests, major institutions avoided investments in South Africa. The subsequent negative investment flow eventually led a group representing 75% of South African employers to develop a charter calling for an end to apartheid.

After the Exxon Valdez oil spill in 1989, Joan Bavaria, an executive specializing in social investments, mobilized a coalition of investors and environmentalists to introduce the Valdez Principles, a green code of conduct for business later renamed the CERES Principles (Coalition for Environmentally Responsible Economies).

In 1990, the popularity of SRI mutual funds and socially conscious investing accelerated the need to find a way to measure their performance. This led to the launch of the Domini Social Index, comprising 400 publicly traded companies in the USA that met certain social and environmental standards. This index debunked investors' fears that this type of investing would yield lower returns than traditional investments.

At the beginning of the 21st century, socially responsible investing continued to gain supporters, giving rise to numerous significant initiatives and funds. In 2006, the term ESG emerged at a UN conference. Major investment firms committed to incorporating environmental (E = environmental), social (S = social), and governance (G = governance) criteria into their financial assessments.

Many socially conscious investors go beyond SRI to seek investments that prioritize positive impact, contributing to the growth of socially responsible investments and generally positive impacts of firms on society. This progressive approach was further strengthened in 2015 with the UN Sustainable Development Goals. These goals, supported by all 193 UN member states, are a compelling call to address the world's most pressing development issues.

While socially responsible investing started as a simple activity associated with religious communities, it has evolved immensely over the years and is now common practice. This concept is increasingly popular and continues to be embraced by individuals and corporations.

Interested in socially responsible investments?

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Ing. Petra Štěpánková, MBA, EFA

+420 604 218 602


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