5c Socially Responsible Investing Article.docx Click this link and read the article on the subject of Socially Responsible Investing. Next read the information below and answer the questions. TOPICS: Corporate Social Responsibility, InvestmentsSUMMARY: Socially responsible investing is being redefined to encompass more than just avoiding companies that sell tobacco, alcohol and weapons. EGS issues cover the environment, governance and social issues. Funds that consider EGS issues are interested in how these issues affect the bottom line. The environment seems to be the most important issue. Including the EGS metric might help exclude companies that face business risk because government regulators and legislatures could decide to tax or penalize companies that pollute. Some studies suggest that selecting funds based on EGS can help performance. One idea is that the EGS metric is a proxy for good managementCLASSROOM APPLICATION: Management and finance seem like two very distinct and separate disciplines until you start to realize that stock prices and financial performance are more than just numbers. Financial performance reflects business strategy and management decisions. The article reviews changes in the definition of socially responsible investing based on the new emphasis on the environment, governance and social issues or EGS investing. Investors and analysts think emphasizing EGS issues can have an impact on the performance of companies. For example, companies that pollute might find future costs increase because of taxes and penalties. One problem with EGS or traditional socially responsible investing is that it can increase risks because it narrows the pool of potential companies to include in a portfolio of assets. Another issue is the added research costs associated with EGS. Research can be extensive and include a review of the supply chain to make sure outsourced production occurs at companies with inspections and testing procedures.QUESTIONS: 1.) What i is EGS investing and why is it a smarter approach to social responsibility?2.) Investors care about risk and return. How might EGS investing lower return or increase risk?3.) Review the hidden risks of outsourcing from and EGS perspective. Are there any examples based on current events that you can think of where a U.S. company and its stock price suffered because of EGS concerns?4.) For some investors EGS might be a moral issue but companies may be less than altruistic (the belief that acting for the benefit of others is right and good) when it comes to focusing on social responsibility. Explain how focusing on EGS issues might help increase company profit.
