Can Socially Responsible Investment Techniques Be Applied to Financial Firms?

By Tom Cleveland

“Sustainable and Responsible Investing,” or “SRI” for short, has been a trend that has gathered momentum over the past few decades, as a portion of the investing community has become more concerned with the ethical aspects of the companies that have drawn their favor. Organizations have sprung up in nations across the world to promote these very techniques and to help conscious citizens apply them to personal financial decisions regarding choices for their portfolio of investments.

Stated simply, these investors broaden their outlook beyond mere profit potential for a prospective investment. They also include the impact the company might have on the planet and on the people closely involved with their special niche in the marketplace. The buzzword, “Triple Bottom Line investing,” has come to connote this approach and has even been incorporated in the title of this website.

But how does one apply these techniques to a financial firm, where brokering your access to worthy SRI investments is the service offered? And, more specifically, is there such a thing as an SRI forex broker, where currencies have little if anything to do with basic SRI principles? Is there a way to discern which forex brokers are more socially responsible than others?

Financial firms deal in data and money, the latter having more to do with safeguarding its value and providing for one’s financial security in the future. Articles have been written about how an industry like spread-betting can strive to be fully transparent in its dealings with its clients, but the forex industry is another story.

The world of currency trading is actually in its nascent stages. Prior to 2000, foreign exchange trading was the sole province of large international banks, major hedge funds, and wealthy individuals. Lot sizes of one million units was a formidable hurdle for the small investor, but creative forex brokers aggregated their trading volume, and, with the aid of the internet and advanced software trading tools, retail forex trading gained instant worldwide popularity.

As with any other nascent activity, there were many issues that had to be addressed in the early days. Fraud was a problem, but regulators policed the wild environment and educated consumers on the high risks that they were undertaking. Safety and soundness are the current concerns, as capital adequacy is key to establishing future stability. The issues of SRI compatibility are beginning to make inroads, but regulatory compliance and consolidation within the industry top today’s agenda.

How do you find an SRI compatible forex broker?

The checklist is actually quite straightforward. Does the firm have an office in your country or community? If not, then you might question the firm’s motives. Is the firm well capitalized? Again, safety and soundness is a key ethical issue with today’s forex brokers. The good ones will protect your account balances or have more than enough capital to sustain any downturn in the economy. Your older firms and banks fall into this category, especially if they are traded on a local stock exchange. Publicly traded companies must adhere to a broad set of financial disciplines and transparency disclosures.

Fully regulated forex brokers also add a degree of security, as well. The brokers that would comprise an SRI list would then include banks like Barclays, Citigroup, and Credit Suisse, or independent firms traded on a stock exchange, like FXCM or GAIN Capital, might be good choices. Any firm, however, that espouses transparency and financial stability should also be considered. For additional information, forextraders.com offers excellent research on this subject and further reading on forex brokers reviews (view section here).

When investing ethically, SRI principles can be applied to any sector of the economy.

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Tom Cleveland is a financial commentator with over 30 years of experience in the international payments industry. Mr. Cleveland also has been participating in corporate and investment writing since 1980.