Socially Responsible Investing (SRI) Is A Scam
Well, perhaps “scam” is the wrong word, but it got you to click through, didn’t it? 
A better way to put it is that “socially-responsible investing is a myth.” Because of the way everything in this world’s economic system is intimately connected, the notion that one can wipe their hands clean of violence, environmental degradation, and exploitation of the poor and remain above the fray is downright silly.
What Is Socially Responsible Investing (SRI)?
Socially Responsible Investing is defined on Wikipedia as a
“sustainable or ethical investment strategy that seeks to maximize both financial return and social good.”
In layman terms, a SRI investor chooses to invest their money only with companies they deem “ethical,” whatever that means for them. Some investors won’t invest in weapons manufacturers but are fine with gambling companies. Others are against gambling and companies that pollute the environment but are fine with alcohol companies. And herein lies the problem: there’s really no one definition of what “socially responsible” actually means.
Why Is SRI A Myth?
I came across a post on socially responsible investing on Moolanomy a few days ago that really helped put the issue in perspective for me, particularly when I read this article, which was linked to from the above post. The jist of the article is that the world economy is far too intimately-connected to make socially-responsible investing possible. Sure, you can avoid investing in oil companies that pollute the environment, but practically every product you can buy requires larges quantities of oil to produce. When you buy those products, the oil company inevitably benefits. The example used in this particular article was that of DeBeers and the diamond business. Sure, you can avoid investing in DeBeers because of the human rights issues, but what about Tiffany (TIF)? What about Zale (ZLC) and Blue Nile (NILE)? And even if you don’t buy any jewelry at all, your money will end up supporting these companies somewhere down the line because somebody is going to buy a diamond, even if you don’t.
So What To Do?
Since avoiding supporting objectionable corporate actions is impossible in the modern economy, what do you do? You have two choices: either make an arbitrary distinction on what is or is not appropriate for you to invest in and sweep the technicalities under the rug or set no limitations and give a portion of your earnings to charities and lobbying efforts you support. Either course of action acceptable but don’t kid yourself, you are supporting violence, environmental destruction, exploitation of the poor, human rights violations no matter what you do. It’s simply the sad state of things.
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One additional point of note: Companies don’t necessarily benefit when you buy their stock.
Assuming you weren’t one of the people who invested at their IPO, you’re not actually providing them funding. You’re simply buying it from somebody else in a 3rd party market. The company itself isn’t even involved in the transaction.
If you’re really against a company, a much more worthwhile endeavor is to decline from buying their products, and make efforts to get others to make the same decision.
Thank you for mentioning my article. This is what I believe. You are better off investing unrestricted to get the best result, and then donate to charities that support social responsibility. You and the charities get more, instead of wasting it on higher expenses SRI funds normally charge.
I agree with both Pinyo and ObliviousInvestor, but why not but both strategies to work… If the best investment were a company I didn’t want to support, I would invest in Second Best Company, while creating a buzz against Wrong Company’s products. Then give the proceeds to charity. I might even short Wrong Company during my buzzmaking… although I don’t know if there are rules against that.
The idea behind SRI is that investors help move companies toward more ethical practices. Boycotting companies has proved to be an ineffective strategy for promoting change. However, you are right in that the issue of diamond and metal mining is very complex with no easy solution. In this case, consumer behavior rather than investing may be the first step. Consumers should only support sustainable jewelry companies that offer recycled or green metal and ethically sourced or lab-grown gems. At this point, that excludes any of the major companies dominating the industry. C5 is one company that does offer alternatives. Learn more at http://www.C5company.com.
Wear Your Commitment.