"Genuine investing involves patiently, even tediously, gathering real knowledge of real-life companies and their economic context, then investing in a few firms with the most promising prospects, while accepting that future events and risks are largely unknowable."
There's a popular misconception that socially-responsible stock investments are not profitable. Not only is this wrong, there is growing evidence that investing in socially responsible stocks may produce better returns than investing passively across the broad market.
"Investors are routinely warned that they will sacrifice returns if they try to include social sentiments - collateral issues like protecting nature - in their investment choices. This shared conviction of the hard-nosed money managers turns out to be wrong."
- William Greider, The Soul of Capitalism
Another way to put investment dollars to work directly for real Americans is through community saving. Our community saving page contains a list of some of the best community banks in the country, and the regions they serve.
Social concerns
Series EE bonds were re-named "Patriot Bonds" after the September 11 attacks, but the money invested in these bonds goes into the general fund, and is not earmarked to fight terrorism. The government is not promoting or marketing savings bonds, as they did during WWII.
The money you invest in savings bonds could be put to work in other ways to benefit America.
In the 1990's, companies began to learn that waste reduction helps the environment as well as the bottom line. Many turned environmental regulations to their advantage when they learned that cleaner operations often lead to unexpected cost efficiencies.
"Evidence is mounting that what is good for the environment is also good for the price of a company's stock. Contrary to the widely accepted belief that environmental regulations are a drain on profitability, research demonstrates that being environmentally effective can add value to a company, and potentially benefit its shareholders." - Forbes.com 2/24/04
Socially responsible investing is among the fastest growing areas of investing today. There are three components to social investing:
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Screening
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Activism
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Community Investing
The following is a brief synopsis of each component:
Screening Socially-Responsible Stocks
Screens are guidelines that define which stocks will be included in a portfolio, and which will be excluded. Social screening is a method of excluding stocks of companies whose practices are considered harmful to society. Most socially-responsible funds exclude stocks in industries such as tobacco and nuclear power. Screens become more sophisticated when you begin to analyze stocks in terms of social, environmental and ethical issues. The socially responsible mutual funds perform a tremendous service to social investors by researching corporate behavior.
Social funds assess the ways a company impacts employees, communities and the natural environment. Socially responsible stocks pay attention to the so-called "triple bottom line". That is, these companies include social and environmental factors in decision-making.
It's natural for investors to believe they will earn higher returns investing in companies that focus only on profits. Social investors might point to Enron as an example of the flaw in that logic. We are learning that companies are more likely to prosper when they consider important social and environmental factors.
Personal values ultimately determine your approach to investing in socially-responsible stocks. If you are concerned about jobs going overseas, you might screen your investments based on employment issues. If you're opposed to war, you might screen companies in weapons manufacturing.
Sustainability
Social screening can help investors discover the hidden value of good companies. Think of the way we take raw materials and fuels from nature, cycle them through the economy as products, then throw them away as garbage. The old industrial system exploits nature's resources and leaves waste at both ends. The sytem is not sustainable if it relies on resources that are non-renewable.
Now think of information and knowledge. The more we use, the more we have. Of course we also need raw materials, but sustainabilty is about learning to make better use of the raw materials, and designing processes based on renewable resources. We are looking at many stocks that are expected to prosper in the years ahead, based on brilliant capitalvalues.
The Dow Jones Sustainability Index (DJSI) is a world-wide index created by Dow Jones to track the sustainability performance of Dow stocks whose overall policies and actions meet their demanding criteria for environmental performance, financial stability/profitability, and equity/social justice programs. Visit the Dow Jones website for an overview of the Index: sustainability-indexes.com
Shareholder Activism
Co-op America is a good place to learn about shareholder activism.
Socially responsible investing is more than simply avoiding stocks of companies engaged in activities you oppose. As an individual investor, the simple act of avoiding certain stocks may have little impact on corporate social responsibility or a company's economic fortunes.
Social investing today involves direct economic and political action to change economic practices through shareholder activism. Pension fund managers are taking an increasingly active role in corporate resolutions.
Shareholder activism has become an integral part of modern social investing. It means using the economic power of your investments to encourage corporate social responsibility through dialogue, shareholder resolutions, or divestment.
Dialogue - Investors attempt to change corporate behavior by requesting dialogue with management on issues of concern.
Shareholder resolutions - If dialogues fails, investors may introduce shareholder resolutions, which are written requests to company management about issues of corporate social responsibility.
Divestment - If dialogues and resolutions fail, shareholder stock divestment is a last resort. Shareholders may decide to divest, or sell off their stock in the company. Divestment is considered a last resort.
These are the primary methods used by shareholder advocacy groups to advance social issues. If you interrested in socially responsible investing and your are concerned about labor rights, renewable energy, and non-discrimination, shareholder advocacy can be a powerful tool.
Mutual Funds
People are often surprised to learn that socially-responsible mutual funds hold shares of stock in companies not considered models of corporate social responsibility. The reason they may hold stock in these companies is to give them leverage to influence the behavior of the company through shareholder resolutions.
When you own stock in a corporation you obtain the right to participate in the growth and success of that corporation, and vote on matters concerning corporate policies and governance. When you invest in a mutual fund that holds stock in a company, you convey this responsibility for to your mutual fund manager.
Last year (2003) the SEC ruled that mutual funds must disclose how they vote the proxies in corporate-governance shareholder fights. The two largest mutual funds, Fidelity and Vanguard opposed the measure. These investment firms are hired by corporations to manage pension funds and 401(k) plans. Mutual fund companies such as Fidelity and Vanguard could lose lucrative contracts by voting with rank-and-file investors against corporate management. On the other hand, if they vote against investors, they may lose them if their votes are revealed. Investors won this battle, and gained a significant leverage in the fight to influence corporate behavior.
Most socially responsible funds are already publishing their votes for shareholders. Beginning this year, all funds will be required to file annually new form N-PX, which will contain the fund's complete proxy voting record. These filings must be made by August 31 for 12 month periods ending on June 30 of each year. Thus, funds will be required to make their first form N-PX filing by August 31, 2004, for the 12 months ending June 30.
SocialFunds.com operates a useful website where you can find out about upcoming proxy votes. Go to socialfunds.com and type in the stock ticker symbol of any company in the search box labeled "Search for Company Profiles". Here you will find information on corporate resolutions coming up for a vote, along with the date of the next shareholder meeting. After August 31, you may e-mail your mutual fund company and request a record of how they voted on behalf of their members. They should provide this information free of charge. After August 31, you may also view proxy voting reports for any fund by reading the Form N-PX available on the SEC website at freeedgar.com
We encourage our visitors to investigate exchange-traded funds as an alternative to mutual funds. Take advantage of ShareBuilder's research by logging on and taking a look at the benefits ShareBuilder.com.
The Soul of Capitalism by William Greider provide the inspiration for CapitalValues.com and our interest in socially responsible investing.
