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Social Investing
by Steve Schueth

"Social investing" describes the integration of personal values and societal concerns into investment decision making. To socially aware investors, the concept of investing for the future almost always has a double meaning. Investment strategies are designed to achieve personal financial goals, such as retirement, while also working to encourage and support the creation of a new tomorrow - a better world to retire into. Some call it a double bottom line approach to investing.

Social investors - from the smallest individual investors to the largest institutions - seek competitive returns from investment programs that also align with their values. They are most satisfied with investments that reach beyond purely financial goals to address a need to make a difference. They are most comfortable with investments that reflect their highest aspirations for the world they would like to pass on to future generations.

Many foundations, religious organizations and other non-profits are beginning to embrace a similar "mission-based" investment process. Viewing investments in light of the organizations mission (values) often requires modifying existing investment programs to bring them into alignment with the organizations purpose. There is often a high level of cognitive dissonance between certain elements of the organizations mission, such as fighting environmental degradation, and large investments in some of the worst polluting companies on the planet.

Three Key Strategies

Social investors employ three basic strategies aimed at the dual objective of making money and making a difference:

How much Money Is Invested in a Socially Responsible Manner?

In November 1997, the Social Investment Forum published its most recent Report on Responsible Investing Trends in the United States which identified $1.185 trillion in managed portfolios utilizing at least one social investment strategy. That was nearly one in ten dollars under professional management in the United States in 1997. From the report:

Is the Social Investment Field Growing?

The social investment field is growing rapidly by nearly every measure. Total dollars under management in socially responsible portfolios grew from $40 billion in 1984 to $639 billion in 1995, to nearly $1.2 trillion in 1997. The number of mutual funds incorporating social screens grew from four in 1984 to 45 in 1995, to 144 in 1997. Investors have a wide variety of choices in socially screened mutual funds today - equity funds of various styles, bond funds, index funds and money market funds. The number of institutions involved in shareholder advocacy efforts and the number of investors channeling money into community-based investment programs have all increased dramatically in recent years.

The Performance Myth: Do Social Investors Sacrifice Returns?

Returns of socially responsible investments are competitive and socially aware investors can do very well employing a double bottom line approach to investing. A solid and growing body of empirical evidence has conclusively dispelled the myth of underperformance. Examples:

How Does Social Investing Work to Create a Better Future?

SCREENING allows investors to align their values with their personal financial goals while earning competitive returns. SHAREHOLDER ADVOCACY allows investors to communicate directly with management and boards of directors about desired changes in corporate policy and practice. COMMUNITY-BASED investing allows investors to put money to work in local communities, where capital is not readily available, to create jobs, affordable housing and environmentally friendly products and services.

Many social investors are proud of their efforts to create a better future for the native population of South Africa. They point to the dismantling of the legislated system of racism in South Africa as one of their greatest successes. In response to the call of black leaders in the early 1980s, social investors took a bold leadership role in the movement to boycott and divest of companies doing business in that country, thus helping to bring enormous economic pressure to bear on the situation.

Over the past decade, the social investment community has worked diligently to bring attention to environmental issues negatively affecting companies and communities. The CERES Coalition (Coalition for Environmentally Responsible Economies) grew out of the Social Investment Forum and has developed a set of broad principles to guide corporate environmental impacts and full-disclosure reporting. With a heightened awareness of environmental issues on the part of investors and consumers, many companies have created senior positions responsible for environmental management. Most importantly, many of these companies have discovered ways of doing business that significantly reduce their impact on the environment while saving money. More and more often, everyone wins!

Another, more specific example of encouraging more responsible corporate behavior comes from todays news. Giant athletic shoe manufacturer, Nike, is under intense pressure from consumers, investors and human rights groups to ensure that overseas factory workers are provided healthy working conditions and earn descent wages. That pressure has resulted in Nike developing a comprehensive Code of Conduct for overseas vendors and creating a group inside the company whose job it is to ensure foreign vendors comply with the Code. The company has recently outlawed hiring workers in overseas shoe manufacturing plants under the age of 18 and expanded programs offering free education.

For most, social investing is about achieving ones financial goals while catalyzing positive changes in corporate behavior aimed at improving quality of life. Thus they use their power as investors and consumers to help with the creation of a more just, sustainable, and healthy society. Almost without exception, multi-pronged strategies are required to achieve meaningful social change goals. These strategies include screening, shareholder advocacy, lawsuits, embarrassing public relations, boycotts, and local efforts aimed at educating an otherwise uninformed public.

Social Investing: A Brief History

The origins of "ethical" investing date back many hundreds of years. In early biblical times, Jewish laws laid down many directives on how to invest ethically. In the mid 1700s, the founder of Methodism, John Wesley, emphasized the fact that the use of money was the second most important subject of New Testament teachings. Many religious investors whose traditions embrace peace and nonviolence avoid investing in enterprises that profit from products designed to kill fellow human beings; and many avoid "sin" stocks - those companies in the alcohol, tobacco and gaming industries.

The modern roots of social investing, however, can be traced to the impassioned political climate of the 1960s. During that decade, a series of themes from civil rights, to concerns about the cold war and equality for women served to escalate sensitivities to issues of social responsibility. The movement broadened to include management and labor issues, and anti-nuclear sentiment. The ranks of socially concerned investors grew dramatically through the years focused on eliminating apartheid in South Africa.

In the late 1980s and throughout the1990s, the Bhopal, Chernobyl, and Exxon Valdez incidents, along with vast amounts of new information about global warming, ozone depletion and the concomitant risks to all life on the planet, have brought the seriousness of environmental issues to the forefront of social investors minds. Most recently, issues of human rights and healthy working conditions in factories around the world producing goods for U.S. consumption have become rallying points for investors with a double bottom line orientation.

Wave of the Future: Voting with Your Dollars

Social investing is beginning to have a tremendous impact on how people think and act. It is beginning to affect many of the decisions we make as parents, as citizens, as consumers and as investors. Social investing is one of the most powerful emerging trends in society today. Actually its more than a trend, its a wave which may one day deposit us on the shore of a better, brighter tomorrow.

The practical benefits of voting with your dollars as consumers and investors is quietly working its way into common practice. Today, people are better educated, and information is more readily available than ever before. They are realizing that money is power, and that each purchase and investment decision we make is an exercise of power. Many have come to understand that in the end, where we put our money - how we use our resources - will tell the tale of where our values and priorities lie.

Its no secret that this generation of investors priorities are increasingly focused on "quality of life" - now, for our retirement years, for our children, and for our childrens children And its becoming increasingly clear to all that business is the most powerful force impacting quality of life in our society, subsuming the influence of both church and state. Investors are realizing that they can make a difference - that they can use their power as consumers and investors to influence corporate behavior and encourage positive change in society.

Social investors are quite simply, men and women who care. They are a fast-growing segment of the investing public who applaud and reward management for responsible corporate practices, and put pressure on firms that refuse to take responsibility for their destructive impact on society. As dollars are pooled around social investment strategies, these individual and institutional investors encourage more responsible corporate citizenship and positive social change through traditional marketplace mechanisms.

Steve Schueth is Chair and President,
Social Investment Forum,
consultant and resource to the social investment industry

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