Social risk

Social risk

Social risk is difficult to quantify. It reflects the potentially adverse impact changing public attitudes can have on a firm’s ability to sell its product.

It is really a form of business risk that impacts a specific firm or industry.
· No one likes ugly smoke-stacks, for instance. Local opposition to apparent pollution might lead to a boycott of company products.
· Past examples of social risk issues include nuclear power, the spotted owl, furs, cigarette advertisements, concern with cholesterol, and the gasoline consumption of SUVs.

According to the Social Investment Forum, there is more than $2 trillion invested in socially screened portfolios in the United States. This is a 47% increase since 1999.

While there are various social screening criteria, avoiding tobacco investments is the most common.

Other criteria appearing in more than half of the institutional screens are related to
· the environment,
· human rights,
· employment/equality,
· gambling,
· alcohol, and
· weapons.

Less common criteria involve
· labour relations,
· animal testing/rights,
· community investing,
· community relations,
· executive compensation,
· abortion/birth control, and
· international labour standards.

Social investing does not necessarily avoid things; sometimes it seeks things out, and not always with good outcomes.
· In 1990 the state of Connecticut Employee Pension Plan, under political pressure, invested $25 million in the stock of Colt Firearms in order to keep 925 local jobs from being lost. Colt filed for bankruptcy 2 years later. This government attempt to help one group of citizens wound up hurting another, as the entire investment was lost.


Also read: Understanding Risk
Partitioning Risk
Business risk
Financial risk
Purchasing power risk
Interest rate risk
Foreign exchange risk
Political risk
Social risk