CHI / November 2011 / Investing Responsively in the Future

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Investing Responsively in the Future

Whether you want to change the entire system or make one part of it better, socially responsible investing can be your tool to effect change. Called by many names—sustainable investing, impact investing, ethical investing, green investing or responsible investing—the common threads are caring about each other and wanting to align our resources with our values to help create a better world for generations to come.

It’s tough to say exactly when socially responsible investing started; it may have begun in the 1700s, when religious groups didn’t want to support companies that used slavery to produce their goods, and they made conscious choices to not do business with them. More recently, socially responsible investors have traditionally avoided industries such as tobacco manufacturers, nuclear power producers and military contractors.

Today, socially responsible investors are doing everything from avoiding companies dealing in genetically modified foods (GMOs) to not backing so-called “too big to fail” banks. In addition to excluding particular companies, another strong focus of socially responsible investing is to identify profitable companies that maintain positive social, environmental and corporate governance policies. Three main components are involved in socially responsible investing: screening, shareholder advocacy and community investing.

Screening

This practice consists of both positive and negative screens. Most people associate negative screening with socially responsible investing—that is, avoiding particular companies or industries that don’t align with your values. It’s your money, and you have a choice of the way you want to allocate it.

Positive screening attempts to find better-managed companies by evaluating them on environmental, social and governance factors. This is in addition to doing the fundamental stock research to identify if the company is a good stock to own. Some in the industry say that doing this extra analysis leads to not only focusing on the bottom line, but also identifies companies that are good corporate citizens and can create long-term sustainable value.

Shareholder advocacy

Many people may wonder how their small amount of money is really going to effect change. Shareholder advocacy is a way of being heard and attempting to change things. It’s the small amounts of individuals’ money added together in socially responsible mutual funds that makes a greater impact and creates a larger voice.

Some socially responsible money managers will engage in dialogues and go through a formal process of writing shareholder resolutions to bring social and environmental concerns to the boards and other shareholders of a company. Recent examples include attempts to improve hydraulic fracturing (fracking) disclosures, promote more workforce diversity, re-evaluate executive compensation and a host of other environmental, social and governance concerns.

Community investing

This means deploying your money into your community and trying to improve the local economy. Whether it’s lending your money to community banks in underserved communities or investing in local organic farmers, it’s a way of making an impact both financially and socially.

Socially responsible investing is now more or less a mainstream practice, with more than 250 socially screened mutual funds available. Stockholders are increasingly looking for ways to understand and influence their portfolios. According to the Forum for Sustainable and Responsible Investment, one of every eight dollars under professional management in the United States is involved with socially responsible investing of some kind.

Get started by making a list of the values that are most important to you. Meet with a financial planner that can help you create a plan, align your investments with your values and work toward achieving your financial goals and vision for the world.

Many socially responsible investment managers are available, and there’s a good chance that you will find those that are personally aligned with your particular values. An effective industry website to explore for more information about socially responsible investing is USSIF.org. Although it’s easy to get overwhelmed and you can’t change the world all at once, implementing small, incremental changes can lead you in the right direction. As Gandhi said, “Be the change you wish to see in the world.”

Colin Chase, CFP^® is the founder of Mindful Money Financial Counsel, LLC, a Chicago-based investment advisory firm that offers financial planning and socially-responsible investing. To learn more, call 312-675-8311 or visit MindfulMoneyFinancial.com.