by Christina Pomoni

Created on: November 09, 2009

Executives around the globe increasingly recognize that the establishment of long-term shareholder value is subject to the ability of an organization to identify and respond to societal demands. This explains the growing importance of socially responsible investing over the last years. Investors seek to integrate sustainability and corporate responsibility into their assessment of an organization's long-term value.

Socially responsible investing (SRI) refers to an investment strategy that focuses on the protection of the environment, human rights, consumer rights and diversity aiming at maximizing both investment returns and social good. Recognizing that business strategy is directly affected by social, economic, environmental and ethical factors, socially responsible investing is becoming particularly significant given the expansion of societal expectations on corporate responsibility. In other words, how organizations attract and retain their human capital, a company's corporate culture and stakeholder-engagement strategies, or how a firm manages the risk and opportunities associated with climate change, all are issues of socially responsible investing.

Socially responsible investing is nothing new. It traces its roots in the mid-1700s when the Society of Friends, commonly known as Quakers, prohibited their members from participating in labor trade and in buying and selling of humans. Since then, SRI has gone a long way and many organizations have implemented investment strategies to promote and sustain socially responsible investing. Initially, SRI was implemented through negative-screening strategies, where investors excluded entire sectors, such as tobacco, based on ethical criteria. Then, positive-screening strategies followed where the best performers of each sector were selected based on social, environmental and corporate governance criteria. In effect, this is the model of socially responsible investing that Dow Jones Sustainability Index follows by tracking the underlying benchmarks of each sector.

At the core of SRI investment philosophy is a certainty that responsible corporate conduct and sustainable investment returns will converge in the near future. However, for this to be realistic, there are some important considerations that need to be addressed.

1. Addressing the social issues of highest importance

Organizations need first to decide what social issues are of the highest importance to their future endeavors. There are institutional investors

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