RSS feedWas yesterday’s post on investing in your vices a little disheartening? Does the “angel” investor inside you wish you could only invest in cute and cuddly companies which breed unicorns and consume green house gases. Luckily, I think we all know that there’s more than one way to make money in the markets. Yes, vice can be a consistently profitable business model, but there are many other great ideas borne of societal necessity which are beneficial.
Socially responsible investing is not quite as easy as vice investing. While vices are pretty easy to identify, things which are “socially responsible” are harder to quantify. These days there are all kinds of socially responsible funds. Some funds are guided by religious principles, others by sustainable development, and still others simply promise not to invest in clear vice businesses.
So, is there a benefit in socially responsible investing? Well, the investment thesis goes something like this. A “clean” company which operates with good labor relations, environmental awareness, and socially beneficial products are less likely to be hit by premium shrinking events - bad press, potential lawsuits, product recalls, or just social backlash. Furthermore, companies with “sustainable” business models are more likely to be able to adapt to changing markets and more likely to be developing solutions for the future as opposed to hoping to hold customers captive with old world products.
Obviously, the downside here is that one could say that being “clean” invariably involves higher expenses. Moral guidelines don’t often guarantee acceptance of a business’ products or services. Truth be told, socially responsible investing is merely the addition of social screens to standard investing strategies. One can think of it as an additional quality metric. It’s really hard to say whether or not it is an effective quality metric, but at the very least you can feel ethically edified by your investment decisions. More interestingly, investing your money in a socially responsible fund which also participates in advocacy can be a way for you to allow your money to generate social dividends. The fund manager, being able to purchase more significant shares of ownership can engage managerial teams in dialogue on best practices, propose shareholder resolutions, and influence proxy votes. To learn more about some funds which actively participate in shareholder activism on behalf of their socially inclined constituents, check out Calvert Funds.
To learn more about socially responsible investing check out: http://socialfunds.org. As with any investment strategy, it’s important to screen not just for social/moral guidelines but also for performance. Once again, SocialFunds.org provides a rather comprehensive list of most known socially responsible funds.
