Is There Such a Thing As a Morally Healthy Investment?

Today, so-called activism is about getting you to spend your money. Some feminists will buy a smash-the-patriarchy mug to stick to a man, while others indulge in self-care that seems more justifiable to be consumed without guilt than a real remedy for their mental health.

Another way to use your money for political purposes, especially for young people, is through socially responsible investment or SRI (alternatively: sustainable, responsible and efficient investment). In this case, we are talking about both investing money in ethically-minded companies and giving up, say, big oil. It is believed that if the only thing business and most politicians care about is money, then investing your money in funds made up of companies that do a good job, as you define, is one way to harm them (this is true for others as well. movement, for example #GrabYourWallet ).

There are many reasons for interest in research institutes that have existed in one form or another for decades. A long time ago, when socially conscious investors may have wanted to avoid Philip Morris (due to tobacco) or other “stocks of sin” such as alcohol, gambling, and firearms. Things are a little more complicated these days.

You can be religious or an ardent opponent of guns; you may care deeply about the environment, or you may want to support companies that hire and promote women and minorities. But can money be moral, even if it is invested in theoretically “good” and honest companies? What is still the point of giving you more income than your down payment?

If you believe that money – and our larger financial systems – is the root of all evil, then of course not. But in my opinion it depends on what you want from your investment. As president of Trump denies climate change and attacks on everyone but himself, among a certain group of progressive-minded citizens have ever urgent need to do something to defend its values and to make the slightest change. And investor behavior can affect the way a business operates to some extent, not to mention cynicism.

Naturally, financial firms are well aware of the interest in R&D. Here’s what you need to know.

What you need to know about SRI strategies

According to the Sustainable and Responsible Investment Forum (US SIF), in 2015, about $ 8.72 trillion were invested in SRI assets of all assets under professional management in the United States, worth $ 40.3 trillion. This is about a fifth of the assets under management – no numbers. fire.

These are mainly pensions, university donations and the like, but there are many mutual funds and ETFs that theoretically appeal to the moral needs of the lay investor: actively and passively managed, scattered in certain industries, etc. which are composed of a wider range of companies. and sectors.

For example, there is the LKCM Aquinas Catholic Equity Fund , which “provides a vehicle for investing Catholic values ​​with stable investment potential” by monitoring portfolio companies (including Alphabet and PayPal) for their policies on issues including abortion, contraception and fetal medication. stem cell research. There is the ETHO Climate Leadership US ETF , which is a non-fossil mid-cap ETF that is “not related to the energy sector.”

These investments are usually screened against environmental, social and corporate standards (ESG). These are subjective criteria, but basically you keep companies according to higher (or any) standards, such as:

  • Environment – how a company acts in relation to the natural world. For example, it can measure waste, pollution, etc.
  • Social – how does the company relate to employees, suppliers, etc. What are the conditions for its work? What standards does the supplier follow? Does he care about his community?
  • Management – how the management of the company is formed and behaves. What is executive remuneration? What are the rights of its shareholders? Which politicians does this favor?

And what funds you invest in depends on what is most important to you.

“When it comes to investments that I would recommend, each individual’s individual risk tolerance and social values ​​differ, so there is no one-size-fits-all solution for all socially responsible investments,” says Lisa Vignola, financial advisor at Plantation, Florida. And consult with a financial professional.

There are some benefits beyond being clear. A 2016 Bank of America report found that “an investor who only held above-average stocks in both environmental and social performance would have avoided 15 of the 17 bankruptcies we have seen since 2008,” and that “Companies that score well [by ESG] average 5% higher ROI than their poorly rated counterparts.”

Limitations of socially responsible investment

Even the most socially responsible companies remain companies. Their mission is to earn as much money as possible and return as much as possible to their shareholders. No company will ever be perfect. (After all, there is a reason why the phrase “there is no ethical consumption under capitalism” has become popular in recent years.)

For example, Apple is considered a leader in corporate social responsibility : it has a worldwide volunteer program, factory worker training, generous maternity leave and parenting policies, and is dedicated to environmental sustainability. But a simple reading of the news will make you question its reputation: Apple is accused of paying workers in China $ 1.60 an hour , using child labor , transferring billions of dollars offshoring to avoid taxes, and many other immoral acts.

“While I agree with the rationale for wanting to exclude certain companies that are not considered socially or morally responsible, I do not necessarily agree that this should apply to investing,” says Scott Salaske, CEO of Firstmetric , a financial advisor. firm. “When you really get down to business, you can find flaws in most companies that don’t adhere to certain beliefs or morals.” Salaske says that giving up patronage to companies you disagree with, like the #GrabYourWallet movement, is more likely to make a difference than not investing in them.

Henry Blodgett, founder of Business Insider, neatly summed it up in The Atlantic in 2007:

After all, at some level, our very economic system is socially problematic. The benefits are disproportionately borne by the owners (investors, that means you) who profit from the work of the employees. Luck plays a role, as does time. Education, connections, and money give some people an edge, and hard work isn’t always beneficial. The key to increasing profits and wealth is increased productivity, and the owner’s joy of producing the same number with 50 workers as with 100 is not often shared by those who receive the canned food. If you are going to invest in any free market venture , you will have to accept that no matter how conscious your choices are, your money will support inequalities in wealth, inequality, and other possibly unfair conditions that go hand in hand. … with a successful market economy.

On a less existential level, SRI funds have long been said to have higher fees than your underlying mutual funds or ETFs. According to a 2017 article by Charles Schwab , this may no longer be the case. “Of the 225 Morningstar-listed mutual funds that identify as socially conscious, nearly half had a lower expense ratio than their category average.” However, this is something you should check before investing – you don’t want to be taken advantage of by trying to do the right thing.

Again, this is where the question comes up the most: are you willing to see lower returns or pay higher commissions to invest in companies that are slightly less bad ? Does the assurance you invest in slightly fewer bad companies relieves you of their behavior, which is bad, and the inherent Injustice of it all? Are we responsible for making our investments socially conscious? It’s up to you to decide.

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