Increase Seen in 'Socially Responsible' Investing
"Socially-responsible" investing, once unheard of, has become more and more commonplace in the Wall Street world of stocks, bonds and mutual funds.
Updated Jul 17, 2001
(CNSNews.com) - Increasingly, today's investors are placing their politics before their profits. "Socially-responsible" investing, once unheard of, has become more and more commonplace in the Wall Street world of stocks, bonds and mutual funds.
What used to be no-brain investments, such as the SP 500, are now seen as poor - and even immoral - choices by those who consider the politics of the companies in which they invest. Philip Morris, for example, manufactures both Marlboro cigarettes and Miller beer, products that could possibly turn away some investors.
The website socialfunds.com bills itself as, "the Internet's most comprehensive personal finance site devoted to socially responsible investing." It includes a section on the history of moral-minded investments, saying that the phenomenon goes back to Biblical times when "Jewish laws laid down directives on how to invest according to ethical values." In more modern, U.S. history, according to the website, the turning point came "during the campaign to eliminate the institutionalized racial discrimination of Apartheid in South Africa."
Since then, many investment companies have developed a crop of funds that place politics before profit, often with the environment and human rights being their primary concerns. It is often difficult, however, to discern the good companies from the bad, given the multitude of issues involved in each. As the Social Funds website warns, "A company that manufactures weapons might be a great advocate of employee empowerment. Another company that makes chairs from recycled materials might also produce toxic wastes in the process."
The site coopamerica.org attempts to help people decide which companies are deserving of their support and which are not by outlining steps for using one's "consumer and investor power for social change." Organizers of the website suggest that investors base their choices on such factors as a company's "environmental record"; "labor/employment" practices, such as whether or not they support "advancement for women and minorities"; "race and gender equity"; and "other criteria," including an "investment in affordable housing" and "support for education."
Co-op America also provides links to "Green Pages Online," the "Boycott Action News," and a site dedicated to ending so-called "Sweatshops," which asks the question: "Does your morning coffee support pesticides and sweatshops ... or people and the planet?"
Both Conservative and Liberal Funds in Game
The Timothy Partners, Ltd. mutual fund group has introduced a set of funds specifically for the purpose of supporting "pro-life, pro-family, Biblically-based" companies. The group's "Timothy Plan" funds avoid investment in any company that is in any way involved with "abortion and/or pornography, as well as companies involved in the production of alcohol, tobacco or gambling." The firm refers to this practice as "values-based investing."
Stephen Ally, the national marketing director for the Timothy Plan, said it is important to distinguish between the different types of "socially responsible" investments. There are several "more socially liberal funds, versus what we are, which is more socially conservative." He explained that such socially conservative investing is a relatively new field, but one which is growing. "It took a while to catch on, but it has definitely caught on." He continued, "Other funds are coming along, that are trying to do what we do."
The website evalueator.com offers software that allows individual investors to screen companies based on one's own personal value-laden criteria. The site also gives performance statistics for various "religious funds." One can evaluate the funds based on seven categories: abortion, pornography, anti-family entertainment, non-married lifestyles, alcohol, tobacco and gambling. The list of available funds includes a "Conservative Christian" fund, a "Lutheran" fund, a "Seventh Day Adventist" fund, a "Roman Catholic" fund, an "Islamic" fund, a "Christian Scientist" fund, and even a "Mennonite" fund.
While it is easy to see why a conservative Christian-based fund would avoid investments in companies related to the abortion or gambling industries, other investment choices made by religious funds may not be so obvious. For instance, due to the Koran's condemnation of the receiving or charging of interest on loans, the Islamic fund shuns all financial services stocks. Likewise, the Christian Scientist fund does not support any company involved in the medical field.
A Wise Investment?
Some question whether investing based mostly on one's religious or otherwise moral beliefs is wise. After a long bull market, profitable investing has become increasingly difficult. A headline in last Monday's New York Times read, "401 (k) Accounts are Losing Money for the First Time."
According to the article, 401 (k) retirement savings plans are now recording losses for the first time since their inception twenty years ago. This is due not only to a waning market, but also to "years of mistakes by employees," namely investing too heavily in stocks and stock funds and too little in the less-risky bond market, the article said. According to one source cited, the average 401 (k) account shrunk by about $5,000 from 1999-2000, and has continued to decline in value since.
Ally is not too concerned about the recent dip in 401 (k) performance and argues that those who are worried live in an "instant-gratification world now."
He prefers to take a long-term approach. "When the market turns around, it's going to be just fine." Furthermore, he believes that an investment portfolio focused on socially conservative companies does not have to limit profitability. For example, his company only eliminates investment in "about 450 companies" out of the 8,000 available for public trading.
Ron Blue Company is a financial counseling firm dedicated to providing "financial counsel from a Biblical perspective." Scott Houser, a partner at the firm, says using "socially-conscious investing" can limit investors in some cases and not in others. His company does not employ "social screens" when evaluating mutual funds, but, "If our clients had a separate account with individual stocks in it, where we could screen out any gambling stocks or alcohol ... we would attempt to do that."
Seth Martin, an equity market analyst with IDEAglobal in New York, said he has found that investment stemming from one's social concerns "certainly ... is growing." He thinks that a big push in the field recently came "out of California, out of Silicon Valley ... [they were] the first large group of investors that had that kind of social consciousness."
Martin thinks the fact that the economy has slowed somewhat actually could serve to increase the amount of socially responsible investing. This is because in such times "the psyche of the investor begins to change," he says.
"As the profits don't come quite so easily, and gains don't come quite so easily, I think you might begin to see more investors turning off the beaten path and looking toward these funds that offer socially-responsible investing."
Martin believes the amount of individuals involved in such investing will only increase with the passage of time. "As there are more funds out there, the word gets out, and I think more people are willing to consider it."
Dennis Carpenter, a financial advisor with International Wealth Management, agrees. He feels that there has "absolutely" been an increase in socially responsible investing. "I think it's catching on ... as more clients are made aware that they do have choices, and that the choices come with ... competitive returns. They are much more likely to have a movement towards those types of investments."
Carpenter does not feel that people are hindering themselves financially by using such an approach to investing, and that they do stand to benefit psychologically. "In the end, people want to have pure dollars - they want to have dollars that are not tainted by things that are in conflict with their beliefs."
Historically, investors who based their decisions on social concerns did it as a "feel-good type deal, whereas now they are saying, 'Hey, wait a minute, these funds are being managed by some pretty well-known money managers, and they have some pretty enviable track records,'" Carpenter said. Therefore, by investing in such a fund, people "can have [their] cake and eat it, too," he added.
What used to be no-brain investments, such as the SP 500, are now seen as poor - and even immoral - choices by those who consider the politics of the companies in which they invest. Philip Morris, for example, manufactures both Marlboro cigarettes and Miller beer, products that could possibly turn away some investors.
The website socialfunds.com bills itself as, "the Internet's most comprehensive personal finance site devoted to socially responsible investing." It includes a section on the history of moral-minded investments, saying that the phenomenon goes back to Biblical times when "Jewish laws laid down directives on how to invest according to ethical values." In more modern, U.S. history, according to the website, the turning point came "during the campaign to eliminate the institutionalized racial discrimination of Apartheid in South Africa."
Since then, many investment companies have developed a crop of funds that place politics before profit, often with the environment and human rights being their primary concerns. It is often difficult, however, to discern the good companies from the bad, given the multitude of issues involved in each. As the Social Funds website warns, "A company that manufactures weapons might be a great advocate of employee empowerment. Another company that makes chairs from recycled materials might also produce toxic wastes in the process."
The site coopamerica.org attempts to help people decide which companies are deserving of their support and which are not by outlining steps for using one's "consumer and investor power for social change." Organizers of the website suggest that investors base their choices on such factors as a company's "environmental record"; "labor/employment" practices, such as whether or not they support "advancement for women and minorities"; "race and gender equity"; and "other criteria," including an "investment in affordable housing" and "support for education."
Co-op America also provides links to "Green Pages Online," the "Boycott Action News," and a site dedicated to ending so-called "Sweatshops," which asks the question: "Does your morning coffee support pesticides and sweatshops ... or people and the planet?"
Both Conservative and Liberal Funds in Game
The Timothy Partners, Ltd. mutual fund group has introduced a set of funds specifically for the purpose of supporting "pro-life, pro-family, Biblically-based" companies. The group's "Timothy Plan" funds avoid investment in any company that is in any way involved with "abortion and/or pornography, as well as companies involved in the production of alcohol, tobacco or gambling." The firm refers to this practice as "values-based investing."
Stephen Ally, the national marketing director for the Timothy Plan, said it is important to distinguish between the different types of "socially responsible" investments. There are several "more socially liberal funds, versus what we are, which is more socially conservative." He explained that such socially conservative investing is a relatively new field, but one which is growing. "It took a while to catch on, but it has definitely caught on." He continued, "Other funds are coming along, that are trying to do what we do."
The website evalueator.com offers software that allows individual investors to screen companies based on one's own personal value-laden criteria. The site also gives performance statistics for various "religious funds." One can evaluate the funds based on seven categories: abortion, pornography, anti-family entertainment, non-married lifestyles, alcohol, tobacco and gambling. The list of available funds includes a "Conservative Christian" fund, a "Lutheran" fund, a "Seventh Day Adventist" fund, a "Roman Catholic" fund, an "Islamic" fund, a "Christian Scientist" fund, and even a "Mennonite" fund.
While it is easy to see why a conservative Christian-based fund would avoid investments in companies related to the abortion or gambling industries, other investment choices made by religious funds may not be so obvious. For instance, due to the Koran's condemnation of the receiving or charging of interest on loans, the Islamic fund shuns all financial services stocks. Likewise, the Christian Scientist fund does not support any company involved in the medical field.
A Wise Investment?
Some question whether investing based mostly on one's religious or otherwise moral beliefs is wise. After a long bull market, profitable investing has become increasingly difficult. A headline in last Monday's New York Times read, "401 (k) Accounts are Losing Money for the First Time."
According to the article, 401 (k) retirement savings plans are now recording losses for the first time since their inception twenty years ago. This is due not only to a waning market, but also to "years of mistakes by employees," namely investing too heavily in stocks and stock funds and too little in the less-risky bond market, the article said. According to one source cited, the average 401 (k) account shrunk by about $5,000 from 1999-2000, and has continued to decline in value since.
Ally is not too concerned about the recent dip in 401 (k) performance and argues that those who are worried live in an "instant-gratification world now."
He prefers to take a long-term approach. "When the market turns around, it's going to be just fine." Furthermore, he believes that an investment portfolio focused on socially conservative companies does not have to limit profitability. For example, his company only eliminates investment in "about 450 companies" out of the 8,000 available for public trading.
Ron Blue Company is a financial counseling firm dedicated to providing "financial counsel from a Biblical perspective." Scott Houser, a partner at the firm, says using "socially-conscious investing" can limit investors in some cases and not in others. His company does not employ "social screens" when evaluating mutual funds, but, "If our clients had a separate account with individual stocks in it, where we could screen out any gambling stocks or alcohol ... we would attempt to do that."
Seth Martin, an equity market analyst with IDEAglobal in New York, said he has found that investment stemming from one's social concerns "certainly ... is growing." He thinks that a big push in the field recently came "out of California, out of Silicon Valley ... [they were] the first large group of investors that had that kind of social consciousness."
Martin thinks the fact that the economy has slowed somewhat actually could serve to increase the amount of socially responsible investing. This is because in such times "the psyche of the investor begins to change," he says.
"As the profits don't come quite so easily, and gains don't come quite so easily, I think you might begin to see more investors turning off the beaten path and looking toward these funds that offer socially-responsible investing."
Martin believes the amount of individuals involved in such investing will only increase with the passage of time. "As there are more funds out there, the word gets out, and I think more people are willing to consider it."
Dennis Carpenter, a financial advisor with International Wealth Management, agrees. He feels that there has "absolutely" been an increase in socially responsible investing. "I think it's catching on ... as more clients are made aware that they do have choices, and that the choices come with ... competitive returns. They are much more likely to have a movement towards those types of investments."
Carpenter does not feel that people are hindering themselves financially by using such an approach to investing, and that they do stand to benefit psychologically. "In the end, people want to have pure dollars - they want to have dollars that are not tainted by things that are in conflict with their beliefs."
Historically, investors who based their decisions on social concerns did it as a "feel-good type deal, whereas now they are saying, 'Hey, wait a minute, these funds are being managed by some pretty well-known money managers, and they have some pretty enviable track records,'" Carpenter said. Therefore, by investing in such a fund, people "can have [their] cake and eat it, too," he added.
Originally published July 17, 2001.
