Investing your money with your heart - News Business Career Jobs Education World Books High Tech Online Articles

Investing your money with your heart

Socially aware investors
Balancing bottom line concerns with social responsibility
Shareholder activism

Social investing is one of the most powerful emerging trends in society today. Actually its more than a trend, its a wave which may one day deposit us on the shore of a better future. "Social investing" describes the integration of personal values and societal concerns into investment decision making.

Still, many investors are not familiar with the concept of socially conscious, or socially responsible, investing. In its broadest sense, socially conscious investing means investing in companies on a basis other than financial considerations alone, particularly social and ethical considerations.

For example, a particular tobacco company might be an excellent investment based purely on return, but many socially conscious investors wouldn't invest in it precisely because it produces cigarettes.

They also might screen out companies because they are involved in the military, alcohol, gambling, nuclear power or have a poor environmental or product safety record. Early on, investors screened out companies that had connections with South Africa because of its racism.

They may invest in companies because they have good workplace practices, promote women and minorities, are involved in the community, have a strong charitable program or any of dozens of other criteria.

Socially aware investors

To socially aware investors, the concept of investing for the future almost always has a double meaning. Investment strategies are designed to achieve personal financial goals, such as retirement, while also working to encourage and support the creation of a new tomorrow - a better world to retire into.

Some call it a double bottom line approach to investing. It's a debate that's been around since the 1970s, when socially responsible mutual funds first appeared on the scene. Investing in socially responsible funds or companies sacrifices returns and increases risk because you're automatically eliminating some of the best-performing companies in the world, argue critics.

Better to maximize your return and donate to the causes you support. Advocates counter that you can invest according to your conscience and still do well financially. Of late, advocates are winning the argument.

Socially responsible mutual funds have been among the best performers of stock mutual funds. The Domini 400 Social Index, an index of 400 screened stocks considered the benchmark for socially conscious investors, has outperformed the S&P 500 four straight years.

In 1998, according to the Social Investment Forum, one out of every ten professionally managed dollars (such as through mutual funds) is invested in socially responsible portfolios.

Several funds have arisen in recent years based on religious or "values-based" concerns. They screen out companies that don't promote Biblical teachings or teachings of the Koran, for example.

This points out some of the difficulty in finding the right fund or company under the umbrella of "socially responsible" investing. A conservative Christian fund, for example, might not want to invest in a company that provides health benefits for "domestic partners"-exactly the kind of company other socially screened funds or investors might want to buy.

Some socially conscious investors won't invest in U.S. Treasury securities because the federal government runs the military, yet others would because the government funds social welfare programs.

Some socially responsible funds have been criticized for being less than "pure" in their screens, holding controversial pharmaceutical or oil companies, or companies whose products are manufactured overseas in low-wage countries.

Social responsibility must be inherent in an organization's objective strategy, simply to aid the well being of society. However, without bottom line concerns, social responsibility cannot be implemented.

In most cases, a company must make a profit before it can contribute to a society in dire need. Hence, when the business entity is profiting, social integrity can be regarded as preeminent concern.

For example, the Vermont ice cream giants Ben & Jerry's, who pride themselves on philanthropy, donates 7.5 percent of their profits to charity.

If more organizations engaged in this activity, society would be more equal, hence, more stable. However, without overhead being met, the super premium ice cream gurus wouldn't have a chance with secondary concerns such as monetary philanthropy.

According to Levi Strauss Chairman and Chief Executive Robert Haas, "The organization needs to be an ethical creature - an organism capable of both reaping profits and making the world a better place to live."

The profits exist, hence in theory, Levi's can afford the practice of ethical concerns. For example, they do not conduct business with those who violate their stringent standards of work environment and ethics.

The conglomerate pulled an astounding $40 million worth of business out of a vast Chinese market in protest of human rights violations.

Balancing bottom line concerns with social responsibility

The arduous task of balancing bottom line concerns with social responsibility considers careful analysis. The adamant concern of public relations and ethical integrity weighs substantially in the planning for a companies continued success.

Since its founding in 1978, Ben & Jerry's Homemade Inc has been widely recognized for its socially responsible initiatives. Not only does the company donate to charity it also supports a variety of environmental and social causes both in its headquarters in Vermont and nationwide.

Talks of a hostile takeover by Dutch food conglomerate Unilever NV or Dreyers Grand Ice Cream Inc. have left many wondering if the company will be able to retain its social focus if acquired by a large corporation.

A study by Dr. Curtis Verschoor at Chicago's DePaul University School of Accountancy, has found that a company's overall performance is closely tied to its ethical commitment.

Verschoor's study, recently published in Business and Society Review, uses several publicly available measures of corporate performance to show that companies that make a "public ethical commitment", signed by top management, regularly outperform those that don't.

Corporate social responsibility concerns encompass such areas as: environmental protection - reduction of emissions and waste and the recycling of materials, philanthropy, involvement in social causes - anything from human rights to AIDS education, urban investment - regenerating small businesses and the inner city environment, and employee schemes - health and safety, good standard of staff treatment, job sharing, flexi-time etc.

There is huge diversity in volumes of corporate disclosure, with companies such as The Body Shop, Traidcraft and Ben and Jerry's leading the way.

Petrochemical companies BP and Shell have recently produced ethical and social reporting documents. BP's 1997 Social Report and Shell's Profits and Principles - Does There Have To Be A Choice?. Home Depot, an American company produces a social responsibility report and an ethics guide to growth.

Although designed mostly to further corporate investment and trade, multilateral trade agreements, such as the General Agreement on Tariffs and Trade (now subsumed by the World Trade Organization) and the North American Free Trade Agreement (NAFTA), do offer limited opportunities to guide corporate conduct.

The Business for Social Responsibility bureau say social investors employ three basic strategies aimed at the dual objective of making money and making a difference:

Screening is the practice of including or excluding securities from portfolios based on social and/or environmental criteria. Generally, social investors seek to own profitable companies which make positive contributions to society.

They require investment managers to overlay a qualitative analysis of corporate policies, practices and attitudes on the traditional quantitative determination of profit potential.

This double bottom line analysis process results in buy lists which often include enterprises with outstanding employer-employee relations, and excellent environmental practices; companies which make and sell safe and useful products, and demonstrate respect for human rights around the world.

Companies whose products and business practices are harmful or violate their values systems are often left out. The qualitative research and evaluation process known as screening generally seeks to identify the best managed companies in various industries.

Screening decisions are rarely black and white - always gray. Tough choices, informed by careful research, are part of the process.

Shareholder Activism

Shareholder Activism - or Advocacy - describes the actions many socially aware investors take in their role as owners of corporate America.

These efforts include dialoguing with companies on issues of concern, and submitting and voting proxy resolutions. Advocacy efforts are aimed at positively influencing corporate behavior.

Social investors often work cooperatively to steer management on a course that it is believed will improve financial performance over time and enhance the well being of all the company's stakeholders - customers, employees, vendors, and communities, as well as stockholders.

Management that creatively balances the best interests of all stakeholders is seen as more enlightened, exhibiting the progressive attitudes of business leaders of the future, and likely to outperform their competitors over time.

Community-based investing provides capital to people in low-income communities who have difficulty accessing it through conventional channels. Many social investors earmark a percentage of their investment dollars to Community Development Financial Institutions (CDFIs) with missions focused on providing low income housing and small business development financing in disadvantaged communities.

Community development banks and credit unions attract market rate deposits, which are then loaned out to finance local projects such as affordable housing. Community development loan funds and micro-enterprise development funds seek investments at below market rates and use the capital to enable people to improve their standard of living, develop their own small businesses, and create jobs.

Social investing is beginning to have a tremendous impact on how people think and act. It is beginning to affect many of the decisions we make as parents, as citizens, as consumers and as investors.

The practical benefits of voting with your dollars as consumers and investors is quietly working its way into common practice. Today, people are better educated, and information is more readily available than ever before.

They are realizing that money is power, and that each purchase and investment decision we make is an exercise of power. Many have come to understand that in the end, where we put our money - how we use our resources - will tell the tale of where our values and priorities lie.

It's no secret that this generation of investor's priorities are increasingly focused on "quality of life" - now, for our retirement years, for our children, and for our children's children. And its becoming increasingly clear to all that business is the most powerful force impacting quality of life in our society, subsuming the influence of both church and state.

Investors are realizing that they can make a difference - that they can use their power as consumers and investors to influence corporate behavior and encourage positive change in society.

Writer: Lindsey Wood

© Copyright 2001. Galt Western Personnel Ltd. Unless otherwise specified, you may reprint this article, quote from it, use it in research or projects, duplicate it or distribute it. Credit of authorship and source MUST be given to galtglobalreview.com. Ownership of Copyright remains with Galt Western Personnel Ltd.

Return to Top

Business News / Business Roundup - Australia / Canada / Europe / United States / Careers / Classified / Information Technology / New Technology / Education News / World Facts / Book Reviews / Archives/Research