Table of Contents 1. What is SRI? 1 2. Origins and Growth of SRI 1 SRI scenario currently 1 3. Difference between SRI funds and non-SRI funds 2 4. SRI and its importance in modern day business 3 Change of view 3 5. Strategies used by investor to invest in a socially responsible company 4 Factors considered by the SRI funds/investors for investing into any company 4 Sources to gather the information for the decision making process 4 Different strategy used by the funds to make SRI decisions 5 6. Two examples of SRI funds: Composition and unique features 6 A. Triodos Sustainable Equity Fund 6 B. Calvert Capital Accumulation Fund Class C 6 7. A Company with SRI investment: Starbucks 7 About the company 7 Sustainability initiatives 7 Controversies 8 ESG Ratings 9 8. Conclusion 9 9. Appendices 10 10. References 10

1. What is SRI?
Socially Responsible Investing (SRI) is sometimes referred to as “sustainable”, “socially conscious”, “mission,” “green” or “ethical” investing. In general, socially responsible investors are looking to promote concepts and ideals that they feel strongly about. The idea is that if oneinvests in companies that cause social or environmental harm, then one is profiting from their evil.
SRI is an approach under which socially and environmentally conscious investors channel their funds towards those companies which have a positive impact on the community and environment, and avoid doing harm due to their operations. This approachcompels companies seeking a share of these investments to modify their practices to be eligible for such investments.
Investors may be investment funds, or individual investors. Individual investors seeking to invest in a socially responsible manner may do so in 2 main ways – identify and invest in companies themselves by direct stock purchase, or invest in a SRI fund that identifies and invests in socially responsible companies. Each such fund may have different criteria for selection or rejection of a company for investment, and even different tolerance for deviations from the criteria. So an individual investor investing through a fund must first find a fund whose criteria are aligned to his criteria.

2. Origins and Growth of SRI
Socially responsible investments were originally followed by religious institutions, whichdidn’t want to be associated with “sinful” behaviour. This was accomplished by using negativescreening.
The modern roots of this phenomenon can be traced to the political climate of the 1960s in US. During the 1970sinvestors’ concerns about the wars, civil rights, and equality for women broadened to include labour/management issues and anti-nuclear convictions, and lead them to avoid investing in companies or countries with these issues.
The size of responsible investment grew dramatically in the 1980s as millions of people and states focused on pressuring the government of South Africa to abolish apartheid. Then, with the Bhopal, Chernobyl, and Exxon Valdez incidents, the environment became the important concern for socially conscious investors.
Around 1990s positive screening began to take onthe meaning of investing in sustainable development and companies that have a positive socialimpact or produce sustainable goods and services.
SRI scenario currently
The US SIF 2012 Report on Sustainable and Responsible Investing Trends in the United States has identified over $3.7 trillion in professionally managed portfolios using one or more of the three dynamic strategies of SRI in the U.S.—ESG integration, shareowner engagement, and community impact investing.
As of early 2012, nearly one out of every nine dollars under professional management in the United States was involved in some form of sustainable and responsible investing—that’s 11.3%of the $33.3 trillion in total assets under professional management in the U.S.

3. Difference between SRI funds and non-SRI funds Difference by Definition
The Non-SRI funds are the conventional funds that are aimed at creating maximum profits for the investors, without any specific constraints on the types of companies or businesses in which the money is being invested.
The SRI funds are the funds that encourage corporate practices that promote environmental stewardship, consumer protection, human rights and diversity. Some avoid businesses involved in alcohol, tobacco, gambling, pornography, weapons and/or the military. In addition to stock ownership either directly or through mutual funds, other key aspects of SRI includes shareholder advocacy and community investing. Difference in Growth
Despite an annual growth rate of 16% per year between 1990 and 2008, the recent data suggests that the growth of conventional mutual funds (NON SRI Funds) has started to decline (Investment Company Institute, 2011).
In comparison, the SRI funds have grown significantly in size and numbers over the same period. According to Social Investment Forum’s (SIF) 2010 Trend Report, number of funds that incorporate environment, social and governance (ESG) factors increased by 90% between 2007 and 2010, from 263 to 490, respectively. Recent growth in SRI funds can be attributed to a number of factors, from an increase in social awareness to changes in legislation.
Difference in Market Entry Factors
In reference to conventional Non SRI Funds, there does not seem to be any particular pattern in terms of entry. However, the decline in in the number of conventional mutual funds entrants after the late 1990s suggests that the driving forces behind conventional entrants most likely depend on the market factors.
The total number of SRI funds increased till 2008, after which the number of new entrants stabilized. Post that, investors have started investing in alternative funds incorporating ESG criteria and these funds have increased by a staggering 285% since 2007. The major driving forces behind growth are an increased demand of social products and services from institutions and high net worth investors.
Future Growth Prospects
Due to a large number of conventional or Non SRI funds already present in the market and frequent entry of more funds, there is a lesser impact of new entrants in the market on the existing funds. Hence, there shall not be a significant impact of new entrants and the conventional funds shall increase at a stable rate, giving consistent and stable returns.
In comparison, the SRI funds have a very limited scope as with the increased awareness of SRI funds, more and more investors are applying a greater number of screening factors to invest in new SRI funds. In fact, most of the SRI funds invest in renewable resources products and services. Hence, even though the SRI funds have seen a significant growth in the recent years, SRI funds’ performance is greatly influenced by other SRI funds entering the marketplace. More precisely, the stock selecting ability of SRI funds diminishes at a greater rate with increase in overlap in portfolio holdings with conventional entrants. In conclusion, even though SRI funds adopt unique investment strategies, an increase in number of SRI and conventional funds over the past decade has increased the effect of competition and consequently, has had a negative influence on SRI funds including their performance. Hence, a similar trend is expected in future due to a limited scope of investment in the SRI funds.

4. SRI and its importance in modern day business
Socially Responsible Investment (SRI) is a well-designed instrument which offers investors with strict moral standards to invest their money without having to compromise their core beliefs and principles.
SRI provides an effective way to modify and control corporate behaviour and discourage any potential antisocial and unethical business activity.Banks, other financial institutions, investors and company's stock holders (owners) have the ultimate power over corporations, by restricting and channelling funds away from disapproved activities, and thus exercising responsible control over the company. In other words, if providers of finance are not willing to finance questionable business activities, companies may find it hard to execute their projects and further develop their business.
A company's share is also negatively affected by the investors' sentiment toward unethical or morally questionable policies of business. Therefore, companies cannot afford to be publicly designated as socially irresponsible.
Along with exercising corporate control, Socially Responsible Investing also serves as an important economic instrument for controlling free-market forces in developed economies.
Change of view
Younger investors are more concerned about making socially and environmentally responsible investments, according to a survey by investor website Millionaire Corner. Its study found that in 49% of millionaire investors from Generation Y, also known as the Millennial Generation, social responsibility is a factor in their investment decisions. This concern was less evident in older generations, with 43% of millionaire investors from Generation X, and 27% of seniors claiming to take into account social responsibility.

5. Strategies used by investor to invest in a socially responsible company
SRI investors or funds follow some strategy before investing into any company. SRI strategy is one that views successful investment, returns and responsible corporate behaviour as going hand in hand. They gather the information about the company and decide whether they want to invest into the company or not depending on many factors.
Factors considered by the SRI funds/investors for investing into any company
The first step is to identify the factors or values that are most important to the investors.They focus on long-term value creation and the generation of financial and sustainable value.
The investors integrate the environment, social and ethical issues while doing any financial analysis, portfolio construction and decision making. Some of the chief areas of concern are climate change, renewable energy, sustainability, human rights, consumer protection, animal welfare, employee relation etc. These areas of concern can be summarized as “Environmental, Social and Governance” and referred to as ESG concerns. They help in measuring the sustainability and ethical impact of an investment in a company or business.
Many indices rank companies based on their rating for ESG issues.These ESG ratings are based on ISO standards and third party verification. The acceptance of such standards as the basis for calculating and verifying ESG disclosures is not universal.
Sources to gather the information for the decision making process
The investors/funds may study the following to gather information about the work done by the company and its inclination towards sustainability: * The annual report to get an idea of areas of expenditure and if the corporate governance is being implemented correctly keeping in mind the goal of sustainability. * CSR or sustainability reports: Many companies publish a CSR or sustainability report about their efforts towards the same, which could help the investor in the decision making process. There are a few social fund databases which compile such reports of the various companies. * Corporate partnership and R&D report for the complete understanding of the activities and business done by the company. * Awards and Recognition: The company has received any accolades or awards for their sustainable development or CSR or ethical activities. * Affiliations with recognizable organizations: The investor may verify whether the company has any green business certification or a membership with an association known for sustainability or social responsibility. * Ratings on sites/indices that evaluate performance: There are few sites which score the company's effort on different ESG concerns which helps the funds or investors to find out which company in a particular sector is making doing more sustainable development. * News reports: Many a times, malpractices as well as good governance cases may be highlighted by the media. these may help the investor make decisions. * Subscriptions based research providers, company surveys, NGO reports, labour unions, community groups, academic experts and other shareholders also help in collecting such data of the company.
Different strategy used by the funds to make SRI decisions
Screening - Screens helps in sifting out stocks or mutual funds that don’t measure up to certain investment criteria, making it easier to find preferred investments for the investor.Once the shortlisted companies meet the defined SRI standards determined by the company, investors can use traditional economic indicators such as sales and earnings, assets and liabilities to make a final decision.
There are three types of screening in SRI -
Positive Screening - Positive screening identifies companies based upon their practices which benefit the society. They are judged to have good employer-employee relations, strong environmental practices, products that are safe and useful, and operations that respect human rights around the world. E.g. investing only in those companies which are involved in activities that promote for example “green living,” like wind or solar power.
Negative Screening - Negative screening weed out the poor SRI performers whose products and business practices are judged harmful to individuals, communities, or the environment. A Negative Screen, for example, could be a fund manager’s conscious decision not to invest in a company that has any involvement with a particular sector, such as tobacco.
Restricted Screening–As many corporations tend to become highly diversified as they grow, SRI fund managers make use of a “Restricted Screen” type of filtration. In that way, though a small part of the corporation’s activities may be in a less than desirable sector, because the amount is so small relative to the rest of the company’s holdings, the SRI investment in the corporation would be permitted.

Shareholder Advocacy - This strategy involves the SRI funds in taking an active role as a shareholder in the company. Investors may knowingly invest small funds in a company that have ESG problems, in order to become shareholders and be in a position to influence decision making for the better. They communicate with company’s management by exercising their proxy vote, attending annual meetings, corresponding with management and submitting resolutions. They engage management in the issues which they consider as important and exercise their right as part-owners of the company to attempt to influence corporate behaviour. This includes talking with companies on issues of ESG concerns as well as filing shareholder resolutions on such topics as corporate governance, climate change, political contributions, gender/racial discrimination, pollution, and problem labour practices.

Community Investing - Community investing directs the capital from SRI funds or investors to the low income and disadvantaged communities that are underserved by traditional financial services institutions. Through community investing, investors can have a direct impact by channelling their funds to communities in need. This provides access to credit, equity, capital, and basic banking products that these communities might otherwise lack.
This financing is often provided by community development banks, which are similar to traditional banks but focus on community development in needy areas, as well as loan funds and credit unions.
Individual investors can participate in community investing through a variety of community investing institutions (CIIs). They can open savings, checking, money market and individual retirement accounts at banks or credit unions, or make equity or debt investments in venture capital funds and in loan funds.

6. Two examples of SRI funds: Composition and unique features

A. Triodos Sustainable Equity Fund
Triodos Sustainable Equity Fund is a global sustainable investment fund that invests in equities issued by companies with a superior social and environmental performance. The fund was established in Luxembourg in October 2000 and as of 13th August 2013, it has total net assets worth EUR 233,712,388.65.

Short-listing Criteria
Product and process related activities that exclude an enterprise from financing by this fund areAnimal testing, Coal, Factory farming, Fur Industry, Gambling, Genetic engineering, Hazardous substances, Nuclear power, Pornography, Tobacco, Unconventional gas, Unconventional oil, Weapons, Violation of labour and human rights, Corruption, Environmental damage, Corporate governance and Violation of laws, codes of conduct or conventions.
Composition of the fund Top 10 Stocks NAME | % | GOOGLE INC A | 4.1 | FIRST SOLAR INC | 2.5 | DIAGEO PLC | 2.3 | EBAY INC | 2.2 | WHOLE FOODS MARKET INC | 2.1 | STARBUCKS CORP | 2.1 | SIMON PROPERTY/PAIRED SHS | 2 | NOVO-NORDISK A/S -B- | 2 | VODAFONE GROUP PLC | 2 | WALT DISNEY/DISNEY SER. | 2 |

B. Calvert Capital Accumulation Fund Class C
It’s a part of one of the largest sustainable and responsible investment (SRI) companies in the United States, Calvert Investments, Inc. It is headquartered in Bethesda, Maryland and led by Michelle Clayman and Nathaniel Paull. It seeks to invest in companies and other enterprises that demonstrate positive environmental, social and governance performance as they address corporate responsibility and sustainability challenges
Short-listing Criteria
Product and process related activities that exclude an enterprise from financing by this fund areAlcohol, Gambling and Tobacco. Also the company is very restricted when it comes to investment in Weapons and Animal testing.
Composition of the fund Top 10 Stocks

NAME | % | CHURCH & DWIGHT COMPANY, INC. | 3.42 | TRW AUTOMOTIVE HOLDINGS CORP | 3.36 | POLARIS INDUSTRIES, INC | 3.15 | HORNBECK OFFSHORE SERVICES, INC | 2.93 | INGREDION INC | 2.88 | SYNTEL, INC. | 2.78 | ROSS STORES, INC. | 2.76 | DST SYSTEMS, INC. | 2.73 | VALMONT INDUSTRIES, INC | 2.69 | COINSTAR, INC | 2.66 |

7. A Company with SRI investment: Starbucks
About the company * Starbucks is the world’s largest coffeehouse chain, based in Seattle, Washington, with 20,800+ stores in 62 countries. * It is a part of all major ESG indices like FTSE4Good, DJSI etc. * It has supported responsible business behaviour since inception – paying good prices to farmers, contributing to community (creation of Starbucks Foundation), contributing to producing countries via non-profit organisations. * In 1994, Starbucks hired the first director of environmental affairs, the first formal post for CSR. At the end of 1999, Starbucks created a Corporate Social Responsibility department. * It publishes an annual Global Sustainability Report, since 2001. But it’s not as detailed as Global Reporting Initiative guidelines. Report is a brief overview, with belief that people won’t read detailed reports.
Sustainability initiatives
Starbucks recognises CSR activities as a business need - consumers are more demanding, employees are more selective about their employers, and investment by shareholders is more inclined towards companies with good reputations. It distinguishes a company from industry peers.
Starbucks has 3 main CSR focus areas: Ethical Sourcing, Environmental Stewardship, and Community Development.

Ethical sourcing * Sourcing coffee, tea and cocoa from responsible farmers, such as coffee certified against standards like C.A.F.E. and Fairtrade, tea through Ethical Tea Partnership (ETP), and cocoa through external inspection service SCS Global Services * Store merchandise, furniture etc. source from responsible factories. In 2012, 128 factories were assessed of which 36 failed. Improvement plans were implemented in half of them, and 15 companies discontinued as suppliers. * Farmer support: Encourage responsible farming practices, help improve quality and size of harvests. * Farmer loans: Have committed total of $15.9 million till now.
Environmental Stewardship * Why? Because environmental changes are harming coffee production too. So must monitor the impact of their activities. * Aim to have greener stores and plants, with less energy consumption, compliant with LEED certification. * Conserving energy and water in their operations, goal is 25% reduction in consumption by 2015 from 2008 levels. * Investing in renewable energy by buying Renewable Energy Credits (RECs) to support development of renewable energy. Currently purchases RECs equivalent to 50% of their consumption. * Investing in cup recycling and food packaging - having recycled cups, having recyclable cups, finding cup recycling solutions, researching techniques for front-of-store recycling as well as back-of-store recycling. * Encouraging personal tumblers by offering discounts (since 1985) * Forest Conservation - encouraging farmers to adopt sustainable farming practices, plant trees, and save plant species, and providing them access to carbon credit markets for additional income
Community Development * Community service - goal to invest 1 million hours/year by 2015, invested 613,214 hours in 2012 * Engaging youth - engaging young people in learning business, and influencing community change * Community centres - stores run in collaboration with non-profits to offer services relevant to a community, invest part of profits in education, safety, housing, health and employment * Farming community - strengthen local social and economic development * Giving - grants to non-profit organisations through Starbucks Foundation * Diversity and Inclusion in work force

Controversies
Even though Starbucks engages in a lot of CSR work, it has sometimes been caught up in controversies that may be deterrents to SRI to the company. * Blamed of anti-competitive strategies towards small competitors, like operating at losses or having multiple store in an area to drive out independent, competing coffee shops. * Criticism for allowing guns to be carried into the store, protested against by people. * Labour issues from time to time, with demands for better pays and work hours, among others. * Alleged tax avoidance in Europe. * Open support of same-sex marriages protested against by anti-gay marriage groups and catholic groups. * Dropped from Pax World Funds portfolio due to deal with liquor brand.
ESG Ratings
Starbucks is found in many SRI fund portfolios and ESG ratings based indices. The Sustainability Leadership Report, reported by Brandlogic and CRD Analytics since 2011, gives companies a Sustainability Perception Score (SPS) and a Sustainability Reality Score (SRS), based on perceived and real efforts towards sustainability. For Starbucks, the analysis shows that its perceived score is more than the reality score, though it has reduced the gap since last year. Also there has been an increase in both SPS and SRS, showing a increased efforts at sustainability. But it is still below the mean score in the category of consumer discretionary products. The scores are:
2012 Sustainability Perception Score SPS - 49.9/100
2012 Sustainability Reality Score SRS – 48.4/100

8. Conclusion
From our comprehensive study on Socially Responsible Investment funds, we found that despite huge market competition from the existing conventional funds present in the market, SRI funds have performed really well, have grown at a staggering rate and have been providing impressive results to the investors. Also, with increased awareness amongst investors and rise in preference for investments in socially responsible products and services, the SRI funds are expected to grow in number in future. However, studies have shown even though SRI funds adopt unique investment strategies, an increase in the number of both SRI funds and Non-SRI fundsover the past decade has increased the effect of competition and consequently, has had a negative influence on the performance of existing SRI funds. Finally, it is important to note that the question whether or not SRI reduces the return on investment will never be laid to rest as this is a difficult empirical question and there will always be legitimate disputes over the quality of data and the most important methodology to use. Also, with the increased awareness among investors regarding global issues and the common aim for a sustainable future, all signs are pointing to the mainstreaming of socially responsible investment practices over the next 10 years. The opportunity lies in being there first with top notch securities analysis based on evaluating the non-traditional risks to shareholder and stakeholder value. As for traditional SRI funds, they will need to identify their values within the value proposition, then differentiate themselves in terms of their style, issues, tactics, financial and social results, and they shall be the catalyst for sustainable growth and development. SRI investment criteria vary greatly from one option to another and investor must take a wise decision as to which aligns best with his motives. The same company may be a major holding in one fund and may not qualify for another, as with Starbucks. 9. Appendices 1. C.A.F.E. Practices http://www.scscertified.com/retail/docs/CAFE_GUI_EvaluationGuidelines_V2.0_093009.pdf 2. ETP http://www.ethicalteapartnership.org/ 3. CHAI and Mercy Crops http://www.mercycorps.org/india 10. References 1. Kim, Martin, In, Francis, Kim, Sangbae, & Kim, Sangbae (2012), Competition of socially responsible and conventional mutual funds and its impact on fund performance[pdf], Retrieved from http://www.apjfs.org/conference/2012/cafmFile/3-4.pdf 2. Wikipedia, Socially responsible investing, Retrieved from http://en.wikipedia.org/wiki/Socially_responsible_investing 3. Starbucks(2013), Starbucks Global Responsibility Report – Goals and Progress 2012,Retrieved from http://globalassets.starbucks.com/assets/581d72979ef0486682a5190eca573fef.pdf 4. Brandlogic& CRD Analytics (2013), 2012 Sustainability Leadership Report, retrieved from http://www.sustainabilityleadershipreport.com/downloads/2012Sustainability_leadership_report.pdf