Cheat Sheet

Socially Responsible Investing For Dummies Cheat Sheet

Investing for your future is always a good idea. The idea behind social investing is that you can make these smart financial moves while staying true to your values. It does require some research, but making smart social investments are well worth the effort. Armed with the right information, you can continue to plan for your future while maintaining your ethics and social responsibility.

Trying on Styles of Social Investing

When you decide to make a social investment, you are showing that you care about the world around you. So, where should you put your focus? Here, in alphabetical order, is a list of the main social investing styles. Which one suits you?

  • Community development: Concerned about the economy where you live? Want to make your city and state a better place? You can invest in stocks, bonds, and other assets that can help make that happen.

  • Corporate governance: Not all companies are run by managers who are committed to responsible, ethical behavior. Investors following this style seek out well-run companies and press the less-than-the-best to change.

  • Environmental issues: Are your concerns centered on the use of natural resources, carbon emissions, and sustainability of the world around us? Many companies share your concern and make good investments.

  • International affairs: Maybe you don’t want to support corrupt governments or finance wars. That’s fair. And your money doesn’t have to do that, either.

  • Religious beliefs: Your faith may guide many aspects of your life, and maybe you’d like to include it in your financial planning. Some religions forbid certain types of investments, but that doesn’t mean you can’t save.

  • Social change: Want to invest in companies that make good products, treat workers well, and contribute to the betterment of society while avoiding those that don’t have great reputations? This is the style for you.

How to Track Key Corporate Risks for Your Social Investment

Following a social style may make you feel better about your investments by investing your money with companies that share your values. Meeting social standards can help companies reduce their risks. Risks fall into four categories:

  • Financial: Does the company make money from its products? Does it have leeway to invest for the future? Is its business sustainable? Are the numbers reported accurately and in enough detail that investors can determine how the business is doing? These are the main factors in measuring financial risk.

  • Operational: This risk category reflects the ability of the company to move products out the door and to the customers. Are there environmental hazards along the way? Business practices that could haunt it? Relationships with unsavory government officials? That’s operational risk.

  • Managerial: Companies are run by human beings, with all the good and bad that entails. Managerial risk comes from the potential for bad decisions, crooked behavior, political infighting, or the loss of a key employee. It often ties into other risks.

  • Reputational: Most companies face stiff competition. Customers can choose among an array of providers for whatever good or service they want, and they sometimes choose based on how well they like the company. A company that’s known for doing the right thing may have a competitive advantage.

How to File a Shareholder Resolution for Your Social Investment

Shareholders are part owners of a corporation. Want to have your say about your social investment? You can file a shareholder resolution asking management for changes. The other shareholders can vote to support it or not. Management doesn’t have to listen, but the process may force the managers to pay attention.

Here’s what you do:

  1. Own at least $2,000 worth of stock for at least one year, and have a letter from your broker attesting to that.

  2. Write a 500-word resolution.

  3. Be sure to focus on matters involving at least 5 percent of the company. Don’t ask the company to break the law, and don’t ask for redress for a specific person or issue.

  4. Send your resolution at least 120 days before the next proxy statement will be prepared.