Years ago, I spearheaded an effort to start socially responsible retirement investments for interested staff. (Chris, the ED, spearheaded the general effort to have staff invest for retirement and encouraged me to pursue this). I did a lot of comparison research based on socially responsible screens and performance data and settled on Citizens Funds. Staff members could elect to set aside pre-tax salary for a 403(b) investment. 403(b) investments are 401K's but for the non-profit world. Staff members defer compensation to invest and the employer, by law, cannot invest on behalf of the staff member.
When I did this research, I was confronted by what "socially responsible" actually means. Its different depending on the criteria used.
Its dizzying to see the number of criteria that different socially responsible mutual funds employ, both to exclude investments and to factor positively in terms of investment. Why do some SRI's get labeled as Christian when not investing in alcohol and tobacco, but when still investing in weapons industries?
For a comparison of the screening employed by many of the major SRI mutual fund companies, please go to: Socialinvest.org. Some particular "Biblical" screens have differentiated themselves from socially responsible screens and are not listed on this site (Timothy Funds).
I'm a little uncomfortable with this distinction, separating "Biblical" screens from socially responsible screens, but its part of the "cookie-cutter" selection criteria for this industry.
Funds can exclude investments related to: abortion, alcohol, animal testing, "anti-family entertainment", gambling, "non-married lifestyles", pornography, tobacco, and defense/weapons industries. Positive criteria include investments in the community, environmental stewardship, human rights records, labor relations records, and equality in employment practices
Unfortunately, there are also funds that employ the converse strategy; they only invest in vice. Vice Funds invest primarily in gambling, alcohol, tobacco, defense industries. (They are doing quite well).
Unfortunately, Citizens Funds had a poor record in the time-frame WMF staff members invested. For cash-poor, support raising missionaries, its hard to see investments lose money even if it is for a good cause...after all that can be done through straight charitable giving that is more efficient. To be fair to Citizens Funds, we started this 403(b) option during the 2000 bubble. Most funds took a significant hit in the year or two afterwards. Citizens Funds was just hit harder than most.
Jason Zweig, Money Magazine writer, counters some popular myths about socially responsible investing: "Data from fund watcher Morningstar and research by finance professor Meir Statman of Santa Clara University show that over the long run the difference in returns between SRI funds and regular funds isn't all that big.
During the past five years, socially responsible funds have lagged conventionally run funds by an average of 0.7 percentage points annually." He also writes that you'll pay fees roughly 0.7 percentage points higher than those you'd pay for the average S&P 500 index fund." But these issues are minor compared to investing in something you believe in.
He also prognosticates that in the future, you may be able to design your own socially responsible mutual fund.
"There's not enough dialogue going back and forth between SRI firms and their investors," says David Wieder, the former CEO of Domini Social Investments and now a private investor. "The investment options for SRI should offer more flexibility and control."
Wieder thinks the day will come when you'll be able to create a unique, roll-your-own SRI fund that would invest according to your personal set of beliefs.
Zweig writes "Technologically, that's not such a great leap for SRI fund companies to make. But they haven't made it yet."
I'd like to reconsider investing in socially responsible ways. I'm an idealist, so I would like to use more screening, not less. I would not just positively rate a company based on environmental stewardship but exclude companies with poor environmental records. A stricter criteria, but important. I would exclude also based on poor human rights records, abortion, pornography, defense industries, tobacco, and gambling. And would be severely restrictive with alcohol, labor relations, animal testing, etc.
And as to accusations of hypocrisy? You're right. Why not invest in tobacco companies if every quarter I smoke a pipe or some cloves? Why not invest in companies that facilitate gambling if I frequented the horse tracks in Kentucky? I guess I still consider these past-times to be fine, but less than perfect. By not investing in them, I do not support the industry itself. Maybe its a poor distinction.
What would you screen for?
For more information on socially responsible investing and some good options that Adam Thada has found, see http://athada.blogspot.com November 7, 2007 entry and June 3, 2006 entry.
Quotes are from: Money
The Intelligent investor: Do the right thing AND make money
Friday December 21, 4:36 pm ET
By Jason Zweig, Money Magazine senior writer/columnist
When I did this research, I was confronted by what "socially responsible" actually means. Its different depending on the criteria used.
Its dizzying to see the number of criteria that different socially responsible mutual funds employ, both to exclude investments and to factor positively in terms of investment. Why do some SRI's get labeled as Christian when not investing in alcohol and tobacco, but when still investing in weapons industries?
For a comparison of the screening employed by many of the major SRI mutual fund companies, please go to: Socialinvest.org. Some particular "Biblical" screens have differentiated themselves from socially responsible screens and are not listed on this site (Timothy Funds).
I'm a little uncomfortable with this distinction, separating "Biblical" screens from socially responsible screens, but its part of the "cookie-cutter" selection criteria for this industry.
Funds can exclude investments related to: abortion, alcohol, animal testing, "anti-family entertainment", gambling, "non-married lifestyles", pornography, tobacco, and defense/weapons industries. Positive criteria include investments in the community, environmental stewardship, human rights records, labor relations records, and equality in employment practices
Unfortunately, there are also funds that employ the converse strategy; they only invest in vice. Vice Funds invest primarily in gambling, alcohol, tobacco, defense industries. (They are doing quite well).
Unfortunately, Citizens Funds had a poor record in the time-frame WMF staff members invested. For cash-poor, support raising missionaries, its hard to see investments lose money even if it is for a good cause...after all that can be done through straight charitable giving that is more efficient. To be fair to Citizens Funds, we started this 403(b) option during the 2000 bubble. Most funds took a significant hit in the year or two afterwards. Citizens Funds was just hit harder than most.
Jason Zweig, Money Magazine writer, counters some popular myths about socially responsible investing: "Data from fund watcher Morningstar and research by finance professor Meir Statman of Santa Clara University show that over the long run the difference in returns between SRI funds and regular funds isn't all that big.
During the past five years, socially responsible funds have lagged conventionally run funds by an average of 0.7 percentage points annually." He also writes that you'll pay fees roughly 0.7 percentage points higher than those you'd pay for the average S&P 500 index fund." But these issues are minor compared to investing in something you believe in.
He also prognosticates that in the future, you may be able to design your own socially responsible mutual fund.
"There's not enough dialogue going back and forth between SRI firms and their investors," says David Wieder, the former CEO of Domini Social Investments and now a private investor. "The investment options for SRI should offer more flexibility and control."
Wieder thinks the day will come when you'll be able to create a unique, roll-your-own SRI fund that would invest according to your personal set of beliefs.
Zweig writes "Technologically, that's not such a great leap for SRI fund companies to make. But they haven't made it yet."
I'd like to reconsider investing in socially responsible ways. I'm an idealist, so I would like to use more screening, not less. I would not just positively rate a company based on environmental stewardship but exclude companies with poor environmental records. A stricter criteria, but important. I would exclude also based on poor human rights records, abortion, pornography, defense industries, tobacco, and gambling. And would be severely restrictive with alcohol, labor relations, animal testing, etc.
And as to accusations of hypocrisy? You're right. Why not invest in tobacco companies if every quarter I smoke a pipe or some cloves? Why not invest in companies that facilitate gambling if I frequented the horse tracks in Kentucky? I guess I still consider these past-times to be fine, but less than perfect. By not investing in them, I do not support the industry itself. Maybe its a poor distinction.
What would you screen for?
For more information on socially responsible investing and some good options that Adam Thada has found, see http://athada.blogspot.com November 7, 2007 entry and June 3, 2006 entry.
Quotes are from: Money
The Intelligent investor: Do the right thing AND make money
Friday December 21, 4:36 pm ET
By Jason Zweig, Money Magazine senior writer/columnist
2 comments:
I don't think it's hypocritical to screen out companies you may occasionally buy from. I'm not a pacifist, but given the tendency of the nation-state towards the industrial-military complex I don't think the weapons industry needs my help.
I had lunch with an MMA praxis guy and really liked what he said, (though I wasn't impressed with his returns, but again maybe this was because I looked at 5-yr return in 2005). One thing in particular that struck me was shareholder advocacy. They noticed that one of the banks they invested in was getting into some very predatory lending. Instead of simply pulling the money out, they stuck around and spoke at the shareholders' meeting. Their influence helped change the bank's practices.
Should SRI be the primary engine of change or should regulation and political action? Meaning - why try to screen out the bottom 10% of polluters when we could regulate them out instead so it's impossible to invest in them? I guess this comes down to political/economic theory...
I believe that people should screen investments according to their own values. Since most people's values are generally for the higher good, we would end-up in a situation where all businesses would be compelled to exhibit better ethics and provide higher quality, more environmentally senstive and socially responsible products and services.
If any readers are interested, I have been following socially responsible investing for about forty years and have a website that covers the latest relevant global news at www.investingforthesoul.com
Best wishes, Ron Robins
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