Corporate Social Responsibility (CSR)
CSR is an umbrella term used to promote "positive" behavior by companies as they interact with the world. Proponents of CSR suggest companies weigh other considerations, including employees, neighboring communities, the environment, or even laws while pursuing a profit.
Many proponents of CSR—including many companies themselves—argue that companies need a “license to operate” from society. This is not a legal document but a quasi- “societal blessing” of a company’s business. Of course, society’s ultimate approval comes in the form of laws and regulations it passes and the economic business that it gives to a company.
Some companies believe CSR can garner goodwill in a specific community or in society-at-large. Goodwill can increase when a company does good deeds (like supporting the local school or offering a wide range of employee benefit packages) and decrease when a company causes harm (creating pollution or corporate scandals).
There is no single definition of “corporate social responsibility.” One person’s “good company” will not pass muster with someone else. Part of this is because different people care about different issues. Just as in politics, some people care very deeply about specific issues. Those concerned about environmental issues (or even one very specific environmental issue) may not focus their company analysis on other topics such as human rights, diversity in the labor force, or governance structure and will therefore form a different opinion of certain companies.
Ultimately, CSR takes the form of process or systems that pursue responsible actions. One of the best evaluations of a given company may be how it engages with those who care about very different issues. Since society is constantly evolving, new issues and challenges will emerge to require attention. In order to address these new challenges, the process a company uses may be as important as the policies themselves.
Socially Responsible Investing (SRI)
SRI is a three-legged stool. The three legs are: shareholder activism, social screening, and community investing. Note that none of these legs prescribes a specific point of view on a specific issue. Therefore, at its core, SRI is a description of process. Each individual investor brings to the SRI process personal concerns and values. Although some believe that SRI is a “left of center” concept, SRI requires only that an investor bring his or her values to the decision-making process.
· Shareholder activism primarily centers on proxy voting. Since shareholders are the owners of a company and collectively have certain rights and responsibilities for making decisions for the company, an annual meeting and vote of shareholders provide an opportunity to address certain issues of concern.
Shareholder who meet certain criteria (including number of shares owned for a certain length of time) may present resolutions for a vote at the annual meeting. The shareholder must meet deadlines for filing the resolution and must be present at the annual meeting. The Securities and Exchange Commission (SEC) has established certain precedents regarding what types of resolutions are appropriate and which are inappropriate; the company may exclude the latter from its proxy statement.
Every shareholder then has the right and opportunity to vote on all the resolutions presented at the annual meeting. For most, voting takes place by proxy ballot. The proxy lists nominees for the board of directors, any other resolutions proposed by management, and any resolutions filed by shareholders. Investors often take an active interest in these votes because the decisions made by the shareholders may influence the strategic direction of the company, and ultimately affect how well the company does financially.
Shareholder resolutions often address social and environmental issues that relate to the company’s behavior. Investors should read the proxy statement, including both the shareholder resolution and management’s response (management almost always opposes shareholder resolutions). Investors may also want to conduct additional research on the company or on the issue before voting.
· Social screening (or portfolio screening) is the process of deciding whether to invest in a company or not based on non-financial criteria. The investor evaluates companies against certain thresholds to decide if they pass muster. For instance, some investors avoid investments in companies that derive any revenue from the manufacture of alcohol. This kind of screening is “negative” or “avoidance” screening. When it results in withholding investment in the first place, it’s “avoidance”; when it results in removing investments previously in place, it is called “dis-investment” or “divestment.”
Some screening is more nuanced. Investors may rank or score companies, only eliminating those that fare worst in the scoring from the investment pool. Issues like environment and human rights are often handled in this manner.
It is important to note that the decision to screen a company out of an investment portfolio then precludes any shareholder activism associated with that company. If part of an investor's reason for pursuing SRI is to influence corporate behavior, then careful consideration will help the investor discern whether active ownership or portfolio screening will have the greatest impact.
· Community investing puts money to work in local communities to spur opportunity and economic development where it may make a significant difference. This kind of investing may be through community development banks that make loans to local start-up businesses.
Values-Based Investing (VBI)
VBI is an alternative term used to express the concept of using non-financial criteria to make investment decisions. Particularly for those who believe that SRI has a specific political connotation, VBI is a reasonable alternative. For many, however, the terms are interchangeable.
Sustainability Investing
Sustainability is the concept that decisions made now will not diminish the ability of future generations to live at least as well as we live now. Sustainability is often defined as having environmental, social, and economic components. Sustainability investing is an attempt to use all three components to evaluate individual investment decisions.
Company policies on environmental, human and labor rights, and economic development can be significant factors in these evaluations. Again, for some investors, there is little difference between the terms “SRI” and “sustainability investing.”
Religious Investing
Many people of faith want their economic decisions to reflect their religious values. Since different people (even within the same faith tradition or denomination) may express their values differently, arriving at different conclusions and decisions, “religious” investing is best described as a religious-based motivation to pursue socially responsible or values-based investing.
Many denominations have national or international organizations that use an SRI or VBI strategy to manage their denominational pension plans. A local church, synagogue, or mosque might want to contact these centralized organizations for guidance on denominational perspectives on investment issues.
Biblically Responsible Investing (BRI)
BRI is a specific approach to SRI/VBI that implements an interpretation of biblical values into an investment philosophy. BRI is usually more conservative in orientation and includes right-of-center values issues as a core part of its approach.
Corporate Governance
Corporate governance encompasses the structures and policies used by a company to make decisions. It includes the board of directors and its committees as well as the charter and by-laws of the company. For some, the umbrella is much wider and might include the manner in which companies make environmental, social, and financial decisions.
Recent corporate scandals set off a firestorm of activity around corporate governance. In 2002, Congress passed a law called the Public Company Accounting Reform and Investor Protection Act (also known as Sarbanes Oxley) setting new rules for companies and their auditors. As one example of the increasing reach of corporate governance, some believe that the Sarbanes Oxley Act now requires greater disclosure of environmental issues by companies. This is not a settled issue, however, and many still criticize the lack of environmental disclosure by large companies.
