Can I Integrate My Core Beliefs Into My Investments?

By Diana Palmieri

You may like to buy only organic produce or perhaps drive an electric car. You don’t drink or smoke. You have strong family values. Did you know you can also invest your money based on your core beliefs? This is called Sustainable and Responsible Investing, socially responsible investing, or simply SRI. 

You may have seen these types of investments within your retirement plan. These options are becoming quite popular, and workplace retirement plans offering a SR option are expected to double in the next two years (source: smartmoney.com 10/2011). If you are thinking about adding this type of investment to your portfolio, please consider whether they may be appropriate based on your risk tolerance, and time horizon. Some specific types of SRI can use a more narrow approach (such as green energy), which, in turn, may carry more risk and volatility.

Some quick facts of the origins of SRI:

  • May date back to 1758 where the Quaker Philadelphia Yearly Meeting prohibited members from participating in the slave trade. 
  • John Wesley, one of the founders of Methodism, also was believed to be an early adopter of SRI. An excerpt from his sermon titled The Use Of Money states “not to harm your neighbor through your business practices and to avoid industries like tanning and chemical production, which can harm the health of workers.” (source: Wikipedia.org)

There was a group of young physicians called the Medical Committee for Human Rights, who were also shareholders of Dow Chemical. They challenged Dow’s production of napalm for use in Vietnam. Napalm is a firebomb fuel gel mixture that sticks to whatever it touches. There is the famous Pulitzer prize winning photo taken of a young Vietnamese girl with burns running naked from her village after it was bombed with napalm. They wanted a shareholder proposal added to other proxy materials to stop the company from manufacturing napalm unless certain assurances were given that it would not be used to burn people. The directors refused. These young doctors took it to court and persuaded a U.S. Circuit Court of Appeals to rule in its favor, breaking the ground for hundreds of shareholder proposals to come. (Medical Committee for Human Rights v. SEC

432 F.2d 659 (D.C. Cir. 1970)

  • Again in early 1970, Ralph Nader, a well known environmentalist, succeeded in getting two socially based resolutions on the annual meeting proxy ballot of General Motors. Although both votes failed, it was the first time the Securities & Exchange Commission permitted social responsibility issues to appear on a voter proxy ballot.
  • In the 1980s, the investment decisions of churches, universities, cities, and states moved many U.S. corporations to divest themselves of their South African operations–this was believed to contribute to the eventual collapse of apartheid.
  • The Domini 400 Social Index was started in the 1990s and encompasses 400 publicly traded companies based on a wide range of social and environmental criteria. It was designed to help socially responsible investors weigh both social and environmental factors in their investment choices.
  • This type of investing now encompasses an estimated $3.07 trillion out of $25.2 trillion in the U.S. investment marketplace today. (source: www.ussif.com)

So what are the investing strategies used? Here are core guidelines and characteristics:

ESG Incorporation–typically called screening, this is the general practice of including or excluding securities based on social and environmental criteria. An example of exclusion would be avoiding certain companies that promote tobacco use, or whether a company  harms the environment or society. Inclusion would be a company that has terrific employee/employer relations or operations that protect human rights.

Shareholder Activism–attempts to positively influence corporate behavior  This includes initiating conversation with corporate management on issues of concern and submitting voter proxy resolutions. The ultimate goal is to benefit workers, communities, vendors and stockholders.

Community Investing–allows money to be invested directly into an institution, rather than purchasing a stock outright, to create a greater social impact. An example is a CDFI (Community Development Financial Institution), which in general provides financial services and products to people and communities underserved by traditional financial institutions. They can provide loans for health care facilities, day care, and affordable housing. The goal is to assist low-income families and create jobs. For more information, go to www.cdfi.gov.

As with any investment, always do your due diligence and know the facts before you dive in. While an investment in a socially responsible arena could help you do social good as well as financial good, there are never any guarantees. To learn more about SRI, go to http://ussif.org.

The information being provided is strictly as a courtesy. When you link to any of the Web sites provided here, you are leaving this Web site. We make no representation as to the completeness or accuracy of information provided at these Web sites, nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, Web sites, information, and programs made available through this Web site. When you access one of these Web sites, you are leaving our web Site and assume total responsibility and risk for your use of the Web sites you are linking to.

Diana Palmieri is dually registered with Vanderbilt Securities LLC and H Beck Inc., which are unaffiliated.  Securities offered through Vanderbilt Securities LLC, member SIPC/FINRA/MSRB.

 

Diana Palmieri is dually registered with Vanderbilt Securities LLC and H Beck Inc., which are unaffiliated. Securities offered through Vanderbilt Securities LLC, member SIPC/FINRA/MSRB. 

 

 

 

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