Socially responsible investing and student managed investment funds: expanding investment education

Abstract

Social investing has grown to become a significant part of the investment world, but is still an often-ignored concept in investment education. This article discusses the history and trends in social investing and discusses how the concepts of social investing can be incorporated in student managed investment funds. Specifically, the design of a socially responsible investing student fund at one university is discussed. Although there are many challenges to overcome in integrating socially responsible investing in the finance curriculum, student managed investment funds may provide a useful vehicle for addressing the ethical and social issues faced in today's investment environment. [c] 2013 Academy of Financial Services. All rights reserved.

JEL classification: A22; G11

Keywords: Ethics; Education; Investments

1. Introduction

The purpose of this article is to examine the role of social or ethical investing in student managed investment funds and to discuss the development of funds that are specifically designed to reflect the growth of socially responsible investing (SRI) in portfolio management. The inclusion of social criteria for student managed investment funds is not a new phenomenon. Student funds at Catholic universities have to meet the investment standards of the Catholic Church and social criteria have occasionally been included in student funds when there is widespread agreement in society (e.g., the exclusion of companies doing business with South Africa during the period when apartheid policy was followed by the government). These criteria are generally exclusive in nature, barring investments in certain types of companies. There have been very few student managed investment funds that have also included a major inclusive component for social investing or are designed specifically to reflect the full nature of social investing. This article will examine the components of social investing and the role of social investing is student managed investment funds including the advantages and disadvantages of social investing. In addition, the specific design of a new socially responsible student fund will be presented. The discussion will include the challenges and benefits of establishing a social fund at a university, the specific design of the fund, and the learning opportunities provided to students.

2. Socially responsible investing

SRI, or ethical investing, requires investors to broaden their selection approach from the classical economic risk or return analysis to the inclusion of criteria such as ethical, societal, and religious concerns. Although SRI receives little, if any, attention in traditional investing courses, social investing is an important part of the investment world. According to the 2010 Report on Socially Responsible Investing Trends in the United States by the Social Investment Forum Foundation, social investing now accounts for over three trillion dollars or approximately 12% of the investments in the United States. In addition, the report indicates that over 250 mutual funds and 26 exchange traded funds (ETFs) apply at least some social criteria in their selection process.

2.1. History of social investing

Social investing has a long history that finds its early roots in religious philosophy. Early Jewish teachings included ethical investing in businesses as well as early Methodist, Quaker,...