Social responsible investing
Socially responsible investing is truly a unique American invention. It is only now gaining momentum in Europe. It is fundamentally a process; an art, not a science; a positive approach to linking the money constructively to life, to society, to the environment and to the world. Responsible investing is based on the recognition that all investing has a social, economic and often a political impact. No one can escape the interdependence between money and what goes on in community and world from day to day .
Responsible investing has evolved from the mere avoidance of socially harmful corporate activities, such as the economic and social goals, such as the creation of low- income housing, support for economic development and the provision of affordable health care. This form of responsible investing is sometimes defined as targeted investing since it tries to specifically target investment capital to areas of the economy that are in the greatest need .
The importance of social responsibility in investing is far from self-evident. One of the worlds best known economists has said, Maximization of profits is the corporate purpose and infusion of social objects will destroy the free enterprise system. A corporate executives responsibility is to make as much money for the stockholders as possible, as long as he operates within the rules of the game. When an executive decides to take action for reasons of social responsibility, he is taking money from someone else, from the stockholders, in the form of lower dividends; from the employees, in the form of lower wages; or the customer, in the form of higher prices .
When the investment community was debating whether or not retirement funds should be divested from companies operating within South Africas hated system of apartheid, some pension administrations accused the divestment advocates of acting as social engineers. In the critics view social investing is really irresponsible investing, at best a form of charity or simply a way to lose other peoples money. Many argue that instead of investing in a socially responsible manner, investors should seek to maximize their profits and then, in the words of one critic, if they desire, each such investor should make contributions and gifts from their gains to aid causes that they consider socially responsible .
This argument is deeply flawed. It ignores the fact that the investment decision in itself may have created or contributed to the social problem in the first place.
The concept of socially responsible investing means that all of us have a duty to recognize how our investments affect society in general and our communities specifically. No longer can investors ignore the realities of the worldwide flow of capital and its effects on our society. If we blind ourselves to these truths, our own jobs, our own families and our own futures may be the next to suffer .
Corporations do have a responsibility to society. Until this century, new businesses needed permission to operate by legislative incorporation or by royal charter. Many states original incorporation laws required business enterprises to conduct to incorporate with little, if any, formal state review other then minimal filing requirements .
Many corporations now recognize their social responsibilities. Some spend vast amounts of corporate funds on charitable giving, economic development, community service and public relations. Businesses have formalized their political role by creating political action committees (PACs), which donate millions of dollars to state, federal and local government lobbying efforts, pay for junkets for elected officials, finance candidates for both partisan and non-partisan races and try to influence votes on referendums and other measures. Corporations join forces to pursue their political, economic and social agendas, forming organizations such as the American Chamber of Commerce and the California Manufacturers Association. Make no mistake about it, corporations are very political and they know hoe to play hard-ball. If individual investors today are scrutinizing the social impact of their investment decisions, they are not politicizing an otherwise neutral economic process; they are simply making their voices heard in an arena where corporate clout has always been important .
Investing responsibly is no longer a chore. Opportunities abound for the investor from safe money market funds, community banks and mutual funds to investing in higher-risk loan funds and social venture funds. Responsible investing in America has been defined in its short 25 year history by its products, but even more by its participants. Responsible investing is humanistic and powerful .
II. THE DEBATE INSIDE RESPONSIBLE INVESTING .
Professionals attribute the success of responsible investing to the public s increasing awareness of the power of money to influence political and economic decision making in America. Corporate contributions to American politicians are so large now that we almost have brand-name elected officials. Environmental, health, safety, land use and other issues are resolved not necessarily by logic or by a democratic decision-making process but rather by raw economic power: money. We have the best Congress that money can buy. The Golden Rule prevails: He who has the gold, rules .
Wielding economic and political power was certainly not the goal of early responsible investors. The avoidance of certain investments was in ethical issue. The American church, as an institution of society, found the investment of church funds in companies involved with alcohol, tobacco, gambling or weapons morally reprehensible and inconsistent with the teachings and objectives of the church. The church was not taking action to economically or politically punish companies or to extract some economic or political concession. It simply chose not to take profit from what it viewed as morally suspect economic ventures. The church was merely avoiding what is viewed as sin investments .
The Vietnam War galvanized the responsible investment movement by uniting political activists and church leaders in support of a new moral and economic order. By the mis-1960s American churches, like universities, had accumulated vast amounts of capital, much of which was invested in companies profiting greatly from the war. The churches and later the universities had to come to moral terms with the dividends they were receiving from their investments. It became impossible for the churches to preach love of humanity from the pulpit on Sunday while collecting napalm dividends on Monday .
III. IS RESPONSIBLE INVESTING POliTICAL .
Shareholder resolutions were introduced in the early 1970s by churches and other concerned investors not to demand moral purity but to act as responsible owners .
A church investment policy of corporate avoidance based upon moral grounds evolved into antiwar corporate campaigns to not only purify portfolios on ethical grounds but to financially punish some corporations for profiting from death and destruction. Acts of ethical avoidance turned to overt political acts designed to inflict economic and political damage. The forum is the best representative of the professionals involved in responsible investing. Members include professionals in accounting, bookkeeping, legal services, portfolio management, brokerages, academia, research and publishing as well as government, church, community and foundation service. There are several local and regional, responsible investment groups such as the Bay Area Socially Responsible Investment Professionals (BASRIP) in San Francisco, the Long Island Social Investment Forum in New York and Socially Responsible Investment Pacific Northwest in Portland, Oregon .
IV. BUILDING A RESPONSIBLE PORTFOliO .
Most people do not want to or cannot manage their money full-time. Actually, most do not even want to do it part-time. Managing money is serious business. It is similar to politics : everybody has an opinion. Unfortunately, in our society money talks and often politics is indirectly, if not directly, tied to money. Just as not everyone can run the country, not everyone can run money .
Many financial professionals and investors have their own horror stories when it comes to bad advice or unprofessional conduct. Many investors have devised unique strategies in dealing with money, while others have attempted to have the least amount of contact with Wall Street.
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