Social Impact Investing

development in the US, or are made available to local financial institutions abroad to
finance international community development. The community investing institution
typically provides training and other types of support and expertise to ensure the
success of the loan and its returns for investors.
Community investing grew almost 5% from 2012 to 2014. Assets held and invested
locally by community development financial institutions (CDFIs) based in the US totaled
$64.3 billion at the start of 2014, up from $61.4 billion in 2012.
Investing in Capital Markets
Investing Strategies
Social investors use several strategies to maximize financial return and attempt to
maximize social good. These strategies seek to create change by shifting the cost of
capital down for sustainable firm and up for the non-sustainable ones. The proponents
argue that access to capital is what drives the future direction of development.
Negative Screening
Negative screening excludes certain securities from investment consideration based on
social or environmental criteria. For example, many socially responsible investors
screen out tobacco company investments.
The longest-running SRI index, the Domini 400—now the MSCI KLD 400—was started
in May 1990. It has continued to perform competitively —with average annualized total
returns of 9.51% through December 2009 compared with 8.66% for the S&P 500.
Despite this impressive growth, it has long been commonly perceived that SRI brings
smaller returns than unrestricted investing. So-called "sin stocks", including purveyors of
tobacco, alcohol, gambling and defense contractors, were banned from portfolios on
moral or ethical grounds. And shutting out entire industries hurts performance, the
critics said. However, in a comprehensive study, financial economists Lobe, Roithmeier,
and Walkshäusl taking the position of the advocatus diaboli, answer the question
whether to invest in a socially responsible way – or not? They create a set of global and
domestic sin indexes consisting of 755 publicly traded socially irresponsible stocks
around the world belonging to the Sextet of Sin: adult entertainment, alcohol, gambling,
nuclear power, tobacco, and weapons.
They compare their stock market performance directly with a set of virtue comparables
consisting of the most important international socially responsible investment indexes.
They find no compelling evidence that ethical and unethical screens lead to a significant
difference in their financial performance, which is in contrast with the results of prior
studies on sinful investing.
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