The Various Ways to Invest Responsibly
Some social investors want to change the world. Other social investors want to make their own neighborhood safer. The following sections go into more detail on different reasons people have for investing responsibly.
Contribute to the community
Not all social investors care about sin stocks or business practices in far-off lands. They just want their corner of the globe to be in better shape. They'd like to see new employers creating jobs and paying taxes in their hometown. They'd like to see nicer, safer neighborhoods for people to live in. Maybe they just want to keep their money with a bank that isn't likely to be taken over by some major, mega-global financial institution.
If this describes your investing outlook, you can find many different opportunities. If you have substantial assets and an appetite for risk, you can provide start-up funds to small businesses in the area. If you're looking for a safe, conservative investment, you may want to purchase a certificate of deposit with a federally insured Community Development Financial Institution, which is a bank that provides services to local residents. In between those extremes are stock, bond, and real estate investments that may make your town a better place to live, work, and play.
Monitor a company's managers
Many investors don't care so much what business a company is in; they're more concerned that the business is truly run for the shareholders (this is called corporate governance). That means management has to be paid for performance, no more and no less. The members of the board of directors should concentrate on providing management oversight and accurate reports to shareholders rather than enhancing their social status. Shareholders should be able to vote democratically and present proposals for management to consider.
Some governance investors look for companies that have great internal practices and a demonstrated history of service to shareholders. Others seek out companies where the management and board have terrible conflicts of interest, performance is lousy, and governance is a mere afterthought. They use their power as owners to force the company to change its ways, improving investment results.
And some governance investors combine tactics. They may be interested in companies that are located in their own community, but if the company doesn't perform well, the investors are in there with all of their activist tools to press the company managers to do better. Someone may have inherited shares in a company that can't be sold under the terms of a trust agreement, but that doesn't mean she has to accept the firm's environmental practices. She can use her power as an owner to push for a board and management that are more responsive to her needs.
Not all governance activists care about the public good. Some are more notorious than noble. However, they're doing nothing more than exercising their rights as owners of the company.
Hug some trees
The way that companies make goods, ship them, sell them, and then handle the waste has a huge effect on the planet — and on the bottom line. The buzzword is sustainability, which is a company's ability to maintain its profits over the very long haul. If a company relies on petroleum, for example, its ability to sustain the business is entirely dependent on the supply and the price of oil. If the company figures out ways to reduce total fuel consumption and use more alternative fuels, it will have an easier time staying in business and generating long-term profits for shareholders.
Maybe you're an investor who is excited about environmental investing because of the potential for revolutionary new technologies. Maybe alternative fuels could be the next television, plastics recycling the next instant photography, or greenhouse gas reduction the next Internet. When you're on the ground floor of new technologies, you take a lot of risk, but you have the opportunity for big profits. Where there's a chance of good growth from major change, there will be investors ready to support it.
Not only do investors want to make money, but so do entrepreneurs. People with great ideas are likely to come forward if they see that they can get financing for them.
Invest internationally and socially
The modern corporation operates all over the world. Its managers don't pay too much attention to borders unless taxes are required to get across them. Investors do pay attention to the countries where companies operate, though. Companies that operate in many countries can choose how much they pay workers and how they operate their facilities. (Wages too high in one country? Move the work somewhere with a lower standard of living.) They also have to deal with governments everywhere they operate, and some national leaders are downright unsavory people.
An international social investor wants to support businesses that do the right thing, even if there aren't laws forcing proper behavior. The "right thing" can range from paying better-than-market wages to refusing to pay bribes to government officials. In many countries, corporations have the money and the power to improve conditions, and social investors want to be a part of that.
Get reminders from religion
Some investors have religious practices that set forth stringent restrictions. These people must avoid certain investments if they want to live according to their faith. Others aren't necessarily risking their salvation, but they'd prefer that their investments line up with their beliefs. If they don't smoke, for example, they may not want to be involved with companies that grow, distribute, or sell tobacco. If they're opposed to war, they may not want to invest in defense contractors. If they aren't allowed to receive interest, they won't be buying bonds.
New mutual funds and financial services have been cropping up to meet the needs of religious investors. These range from index funds that exclude offending companies to new ways to finance home purchases — new ways from an American perspective, at least.
Finally, some of the most active investors are affiliated with religious schools, charities, and other institutions. They are quick to use the power of their material resources to push for positive change. If you're interested in activist investing, check out groups such as the Interfaith Center on Corporate Responsibility, which works to get company managers to pay attention to its interests. It's the owner's prerogative, after all.
If your religion has strict rules about money and finance, you should talk to your clergy to make sure your investing program follows them.