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Big Money Backs Social Responsibility's Rise

By Alyce Lomax - Updated Apr 6, 2017 at 10:30AM

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Investors vote with their dollars in favor of better-behaved businesses.

Good news, Fools: We may have learned a few lessons from the financial crisis after all. Big money seems to be joining the responsibility revolution -- and if you ignore this growing trend, you could miss out big time.

According to the Social Investment Forum Foundation's 2010 Report on Socially Responsible Investing Trends in the United States, assets under management by managers using socially responsible and sustainable investing strategies are growing at a faster pace than the rest of the investing realm.

Since 2005, SRI assets have surged more than 34%, and these assets have now hit $3 trillion. Nearly one out of every eight dollars, or 12.2% of the total $25.2 trillion in total assets under management, is dedicated to some form of socially responsible and sustainable investing thesis.

Want an even more amazing statistic? During our recent economic malaise, socially responsible investing actually flourished. Between the beginning of 2007 and the end of 2009, broad markets declined, and overall assets under professional management stayed flat, but the amount of assets managed under sustainable and socially responsible investing strategies grew by 13%.

Doing well by doing good
No wonder so many companies publicize their inclusion on lists and indexes that deal with socially responsible investing (SRI) and sustainable (or green) investing. They don't want to fall behind the curve. The biggest companies recently added to the Dow Jones Sustainability Index included Standard Chartered, Morgan Stanley, and ArcelorMittal.

On the flip side, companies recently booted from such indexes have received shareholder flak. In the past few months, Microsoft (Nasdaq: MSFT) and Oracle (Nasdaq: ORCL) both fielded unhappy shareholder proposals related to their dismissal from sustainability indexes.

Many companies are now taking corporate social responsibility to heart -- and the public's taking notice. Boston College's Center for Corporate Citizenship and the Reputation Institute recently released their list of companies the public considers the most socially responsible. Johnson & Johnson (NYSE: JNJ), Walt Disney (NYSE: DIS), and Kraft Foods (NYSE: KFT) topped the list.

Social responsibility's benefits to a solid corporate reputation may even be quantifiable. According to the Boston College/Reputation Institute report, if a company can boost its reputation by five points on their scale, the number of people who feel moved to positively recommend the company increases by six percentage points.

Not surprisingly, financial companies like Bank of America (NYSE: BAC), AIG (NYSE: AIG), and Citigroup have watched their reputations crumble over the past two years, as the public learned of their reckless and irresponsible conduct. The clear problems these businesses revealed in the financial crisis and its aftermath may have made banks the newest sin stocks to avoid.

A paradigm shift to the positive
The combination of positive public opinions of social responsibility, and trillions of dollars pouring into new investments, may herald a new era of improved corporate behavior. Socially responsible investing focuses on solid companies that do well by doing good. These enterprises can make the world a better place through innovation, sound judgment, and the belief that treating all stakeholders well is a competitive advantage, not a weakness.

Seeing beyond short-term profits could be a difficult paradigm shift for many of the individuals running companies today, which may explain several businesses' recent efforts to rebel against responsibility. But now is no time to give up on the goal of better, more ethical companies, nor surrender to a backlash from complacent leaders. Indeed, there's never been a better time to start devoting our money, voices, and shareholder votes to advance socially responsible values at the companies we own.

Check back at every Wednesday and Friday for Alyce Lomax's columns on corporate governance.

Walt Disney and Microsoft are Motley Fool Inside Value picks. Walt Disney is a Motley Fool Stock Advisor selection. Johnson & Johnson is a Motley Fool Income Investor selection. Motley Fool Options has recommended diagonal call positions on Johnson & Johnson and Microsoft. The Fool owns shares of Bank of America, Johnson & Johnson, Microsoft, and Oracle. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.

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Stocks Mentioned

Kraft Foods Group, Inc. Stock Quote
Kraft Foods Group, Inc.
The Walt Disney Company Stock Quote
The Walt Disney Company
$106.63 (-1.38%) $-1.49
Microsoft Corporation Stock Quote
Microsoft Corporation
$282.91 (-0.26%) $0.74
American International Group, Inc. Stock Quote
American International Group, Inc.
$51.83 (1.39%) $0.71
Bank of America Corporation Stock Quote
Bank of America Corporation
$33.96 (1.68%) $0.56
Oracle Corporation Stock Quote
Oracle Corporation
$77.35 (-0.07%) $0.05
Johnson & Johnson Stock Quote
Johnson & Johnson
$171.11 (-0.40%) $0.68

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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