Responsible Investing

When she began investing her savings four years ago, Cynthia Ashley decided she wanted to invest in companies that were not detrimental to the environment or people’s health. Instead of investing her hard-earned cash in a big tobacco company, for instance, she wanted to put her money in companies that were more forward-thinking.

"Microfinance is one of the most effective ways to move people from a position of survival to planning for the future." —Aswini Narayanan, General Manager of Microplace.

Photograph by Kyle Chesser

“I found a huge field of socially conscious investing,” says Ashley, who works as a community outreach director for a nonprofit organization in Boulder, Colorado. “While it’s smaller and the options are not as great as … general investing, with a little bit of time you can find places to support your ideals and support your values, and if you’re careful you can get as much return as in other areas.”

Ashley invested with the help of Green Retirement Plans, Inc., a three-year-old financial planning firm run by Timothy Yee, with his wife, Rose Penelope Yee, in Oakland.

“A lot of people don’t know they can have socially responsible investments in their retirement plans,” Rose Yee says. “We’re trying to educate people to let them know there are alternatives.”

Ashley wanted to invest in mutual funds that fell in line with her personal values as well as her financial needs. With the help of Yee, she was able to “screen out” funds that included tobacco companies. She also researched and chose to invest in solar energy stock.

A similar “put-your-money-where-your-values-are” philosophy motivated San Francisco resident J. Scott Smith to invest with Green Retirement Plans, Inc., after meeting Timothy Yee at a San Francisco Green Festival three years ago. Smith, who owns a catering company, says he tries to live a lifestyle based around social responsibility, which includes eating vegan and shopping for locally produced goods. Yee recommended that Smith invest in Calvert Group mutual funds, which concentrate on socially responsible businesses, and a real estate investment trust that supports green building.

Smith says he has seen a better return with Yee than with a previous financial planner. “It’s been a pretty good experience overall,” he says.

Over the past 20 years, the total dollars invested in socially responsible investing (known as SRI) has grown exponentially, as has the number of professional and individual investors involved in the field, according to a 2007 trends report published by the national nonprofit Social Investment Forum. Between 1995 and 2007, total dollars under professional management in SRI grew from $639 billion to $2.71 trillion, outpacing the overall market. There’s a conception that socially responsible investing yields smaller returns than regular investing, but industry representatives say it’s a myth. A number of academic studies show SRI mutual funds performing competitively with non-SRI funds, according to the Social Investment Forum. Several of these peer-reviewed and published studies have been awarded the prestigious Moskowitz Prize, which recognizes outstanding quantitative research in the field of socially responsible investing.

In addition, the longest-running SRI Index, the Domini 400, performs competitively compared to the S&P 500. Since it was started in 1990, the Domini 400 has provided 10.33 percent total returns versus 10.33 percent for the S&P 500.

A number of different options exist for socially responsible investing. One is a screening process, which involves screening out companies that support products such as cigarettes, alcohol, or gambling, and screening in investments and companies that support eco-friendly and sustainable products such as clean technology.

Calvert Group, one of the biggest and most well-established SRI firms, offers a number of mutual funds that include companies with strong records on environmental responsibility, human rights, workplace rights, and other social issues. Founded in 1976, Calvert’s initial focus was on ethical or value-based investing, says Geoffrey Ashton, a senior vice president of marketing for Calvert. The focus has shifted, he says, to investments that can help reduce climate change. Calvert works with third-party intermediaries such as investment advisors and 401(k) managers.

“We give them the products that enable them to meet their clients’ financial considerations and also meet their clients’ sustainable considerations, too,” Ashton says.

Another alternative is community investing, the fastest growing area of socially responsible investing. Over the past decade, community investing has grown from $4 billion to $25.8 billion in assets, according to the Social Investment Forum. Community investing provides access to credit, equity, capital, and basic banking products that these communities would otherwise lack.

This type of investing can take the form of providing microloans to different parts of the world. At Microplace, investors can choose the type of business they wish to invest in and the location, as well as the rate of return.

A subsidiary of eBay, Microplace works with lenders that provide capital to entrepreneurs in 35 countries.

“Microfinance is one of the most effective ways to move people from a position of survival to planning for the future,” says Ashwini Narayanan, the general manager of Microplace.

“It is a specific cause,” she adds. “It’s not done through mutual funds, it’s done through organizations raising capital for microfinance.”

Another tenet of SRI is shareholder advocacy, which involves socially responsible investors taking an active role as the owners of corporate America. These efforts include talking or “dialoguing” with companies on issues of social, environmental, or governance concerns.

Nationally, the Social Investment Forum is pushing the Federal Communications Commission (FCC) to allow investors to nominate members to the boards of directors of companies, says Lincoln Pain, the chair of the Northern California chapter of the Bay Area Social Investment Forum, a trade association.

In addition, corporations are not required to disclose their environmental liabilities, but the Social Investment Forum is pushing the FCC to change that.

One of the biggest challenges in SRI is providing a greater menu of socially responsible investment options in employer- or government-provided retirement accounts.

Overall, any investor has a choice of whether or not to be socially responsible, Pain says.
“Everybody [can be] a responsible investor,” he says. But “they may choose to not take on that responsibility.”

Alan Lopez is a veteran newspaper reporter and copywriter. He is currently a freelance writer and editor living in Oakland.

If you’re interested in socially responsible investing but don’t know where to begin, the following websites can help:
The Social Investment Forum offers background information and research about socially responsible investing as well as mutual fund options and financial planners who work in the field.
The National Green Pages lists 3,000 businesses that have made commitments to sustainable, socially just principles, including the support of sweatshop-free labor, organic farms, fair trade, and cruelty-free products. The website includes everything from baby care products to teas to fuel-efficient cars.
The Community Investing Center can help you add community investments into your portfolio. The site offers background information on community investing, as well as a search function that allows visitors to find organizations and investment products.
Social Funds claims it’s the largest personal finance site devoted to socially responsible investing. The site features more than 10,000 pages of information on socially responsible mutual funds, community investments, corporate research, shareowner actions, and daily social investment news.