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Socially Responsible Investing: Putting Your Money Where Your Heart Is

A lot of people make that connection when they purchase products. Some choose to purchase only organic food, so as not to support the pesticide manufacturers. Others refuse to buy products from companies whose policies they disagree with (a company with a bad pollution record or poor race relations, for example).

But when it comes to investments, many people don’t realize how much their dollars can mean for various social and environmental causes, or how much harm they can be doing, if not used wisely.

"If you’re not paying attention and doing social investing, you’re probably investing in all kinds of things that you don’t want to think about," says Eric Smith, a certified financial planner affiliated with KMS Financial Services in Seattle. Smith specializes in socially responsible investing (SRI).

Social investors are using their money to support companies involved in social and environmental innovation and change. At the same time, they’re pulling their investments out of companies that harm the environment or employ socially backwards practices.

Their investment policies have helped end Apartheid in South Africa, revitalized communities and spurred corporations to improve their environmental records.

Today, approximately 10 percent of all investments fall under the category of socially responsible investing. Smith says $700 billion are currently invested in this manner in the United States.

The SRI field has grown dramatically. In 1984, only $40 billion was invested in socially responsible ways.

One of the most notable reasons for this growth was the movement to divest funds from corporations doing business in South Africa in the mid- to late-1980s. Many colleges and universities and local governments removed their investments from such companies.

Another major growth factor has been our increasing awareness of the damage we are doing to the environment. Many businesses today tout Earth-friendly products. As the environmental movement grows, so does the SRI movement.

"It’s grown so much that it’s now a lot easier for investors to be responsibly invested," says Smith. "10 years ago, there were less than half-a-dozen socially responsible mutual funds. Now there are more than three dozen."


Also, consumers are discovering that they can make as much, or even more, money by investing in companies that match their principles--despite Wall Street claims to the contrary.

In a 1995 study, the Investor Responsibility Research Center (IRRC) and Vanderbilt University examined the stock market performance of all companies in the Standard & Poors 500. The researchers then used environmental criteria such as oil spills, chemical accidents and environmental litigation to group the firms into "cleaner" and "dirtier" categories.

"The data suggests that firms complying with environmental laws and firms that have relatively cleaner processes than their competitors do well in the stock market," says study author Mark Cohen, in Co-Op America Quarterly, a magazine that focuses on promoting economic alternatives.

The researchers found that in 80 percent of the portfolio comparisons, the "low pollution" portfolios performed better than the "high pollution" portfolios.

Further proof of the financial incentive to invest responsibly comes in comparing the results of the Domini Social Index, a six-year-old stock index of 400 socially responsible companies, to the S&P 500 (the standard by which most stock investments are judged). In the past five years, the DSI 400 has outpaced the S&P 500 "in terms of annualized return by a margin of 16.9 percent versus 15.5 percent," according to Co-Op America Quarterly.

Socially responsible funds are often among the top performers among all funds. For example, in calendar year 1996 the environmental Green Century Balanced Fund not only outperformed the other 45 socially responsible funds, it ranked second among all 277 balanced funds (combines stocks & bonds in one fund) tracked by Lipper.


Investment Screening

Of these, screening is the biggest--and perhaps the oldest. In SRI, you can screen potential investments for positive and negative qualities. In other words, you (or a professional financial planner) scrutinize a company’s record on environmental and social issues. Socially concerned investors typically look to invest in companies with outstanding employee relations, excellent environmental policies, respect for human rights around the world, and safe products. At the same time, they avoid companies that don’t have these features.

As early as the beginning of the century, churches and universities screened out tobacco, alcohol and gambling from their investments. In the Vietnam War, many investors pulled their dollars out of companies supporting the war effort.

Today, screening covers a wide variety of areas.

Smith asks clients to fill out a questionnaire detailing their screening preferences.

1) Negatives screens that Smith’s clients can rate include:

· alcohol/tobacco manufacturing · animal testing · anti-union practices · environmental abusers · factory farms · fast-food restaurants · gambling · pulp/paper/logging · nuclear power · pesticide/chemical manufacturing · weapons manufacturers.

2) Positive screens are:

· affordable housing · alternate energy · community support · environmentally clean · health care · minority/gender issues · product safety · recycling/conservation · wholesome food · worker/safety benefits.

Indeed, some people consider positive screening the next logical step. While taking investment dollars away from companies that employ socially irresponsible practices can be effective, it can be even more powerful to invest in one of the many companies that are working hard to create sustainable technologies and practices.

Shareholder Activism

Another popular method to promote social and environmental change among corporations is shareholder activism. This technique gives socially responsible investors the direct ability to influence company practices. An investor purchases a small amount of stock in a corporation in order to gain the right to issue a shareholder resolution. The resolution, or a threat of one, can be used to influence a company to make decisions that promote the environment, the well-being of employees or the safety of their products.

Last year, for example, socially responsible investors used shareholder resolutions to persuade 3M Media, the third largest operator of billboards in the United States, to announce that it would stop handling advertising contracts for tobacco companies, and PepsiCo to announce that it would sell its operations in Burma, a country with a poor human rights record.

In 1996, nearly 240 social and environmental shareholder resolutions were issued with 153 major companies, according to the Interfaith Center For Corporate Responsibility.

Community Investing

Community investing is the area where SRI dollars can bring about the most bang for the buck. Community investing can bring rates of return equal to or greater than a traditional savings account, while channeling important resources into disadvantaged communities. It includes investments in community-based financial institutions such as community development banks and credit unions.

South Shore Bank, for example, has spent the last 23 years helping to rebuild communities on the south and west sides of Chicago, investing $330 million in community development in that time. The bank’s lending has enabled the rehabilitation of 9,000 housing units in the Chicago area, along with creating jobs.


Socially Responsible Investing is something that appeals to a wide segment of the population.

"I have clients who are school teachers, as well as Microsoft millionaires and everyone in between," says Smith.

Some people are do-it-yourself investors, and there are many books available, and many World Wide Web sites contain valuable information (see sidebar).

Other people prefer to let experts do the investing for them, and there are certified financial planners in the area that specialize in socially responsible investing.

"People would basically want to meet with a financial planner and see if they have a compatible business style and that they trust the financial advisor," says Smith. "And then it would be important for the financial planner to understand the client’s situation and reflect it in their advice. Each situation is different and unique."

In either case, you’ll want to think about what kinds of investment values are important to you. It’s a good idea to come up with a list of potential positive and negative screens you wish to employ.


For More Information on Socially Responsible Investing

If you’re just getting your feet wet with Socially Responsible Investing, there are a number of great resources to get you started--both in print and on the Internet. Here are a few good choices:

Investing From the Heart: The Guide to Socially Responsible Investments and Money Management, Jack A. Brill and Alan Reder, Crown, 1992. Outlines SRI principles and gives important how-to advice on picking stocks and other investment opportunities.

The Calvert Group,, is one of nation’s largest families of SRI mutual funds. You can use this Web site to find out if you own any tobacco stocks.

Green Century Funds is an SRI investment firm founded by environmental advocacy groups. They have both an equity fund (all stocks) and a balanced fund (combined stocks & bonds). Both funds are no load. 1-800-93-GREEN.

Co-op America: offers practical tips on re-directing your purchasing and investment dollars to build a better world, as well as links to many SRI sites.

Social Investment Forum: provides the most current listing of socially screened mutual funds as well as lots of other information.

The GreenMoney On-line Guide: offers many SRI articles and links. GreenMoney promotes the awareness of socially and environmentally responsible business, investing and consumer resources.

To learn more about community investing, contact: National Association of Community Development Loan Funds, 924 Chevy St., 3rd Floor, Philadelphia, PA 19107; (215) 923-4754, or National Federation of Community Development Credit Unions, 120 Wall St., 10th Floor, New York, NY 10005; (212) 809-1850.

Ecodeposits offers a full line of ecological bank products. 7054 S Jeffrey, Chicago, IL 60649, (800) 669-7725.

Eric A Smith, CFP, Socially responsible investing and financial planning since 1986, 4464 Fremont Ave N, Ste 310, Seattle, WA 98103, (206) 632-3337 or 800-878-2344.

Progressive Securities, environmentally responsible investing, 200 First Ave W, Ste. 204, Seattle, (800) 366-1055.


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