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Aligning Your Values With Your Investments

Aligning Your Values With Your Investments Corporate ethics. Clean industry. Fair wages. As oxymoronic as these phrases may sound in traditional business, many investors are now basing their investment decisions on these principles. Investors are beginning to align their values with their investments.

Many people believe that they can make a difference with their investment dollars by avoiding companies with questionable records and focusing on those that take responsibility for their actions. This strategy is the basis for Socially Responsible Investing (SRI.)

The market for SRI is experiencing explosive growth. According to the Social Investment Forum, since 1995 the amount of assets invested in socially responsible portfolios has increased to over $2 trillion ? growing 40% faster than the pace of the broad market.

So how does one incorporate SRI into their own portfolio? First, you need to define what your values are. The most common concerns include the following:
  • Corporate governance and business ethics
  • Environmental track records and sustainability
  • Workplace issues, such as race and gender discrimination or wages
  • Safety of products manufactured
  • International human rights
By defining which values are important to you, you can begin negative screening. Negative screening removes the companies that do not share your values. For example, an investor who values strong business ethics would avoid investing in companies that are regularly fined for their actions (or inactions). If human rights are important to you, then you will likely want to screen out corporations who violate child labor laws. The most common negative screens are for tobacco and alcohol.

On the flip side, you can also run a positive screen. Positive screens look for the best rated companies related to your particular concern. For instance, many companies are highly proactive in reducing their greenhouse gas emissions, and the emissions of their products. So, environmentally-minded investors may keep track of the Wilderhill Clean Energy Index which includes only these types of companies.

With the vast availability of internet research, many individuals can screen their own stock portfolios in an effort to add values to their investments. Morningstar has a list of SRI mutual funds and Yahoo Finance has a wealth of information on individual stocks. Calvert Mutual Funds has a tool on their website called Know What You Own. This tool enables you to screen your mutual funds based on a number of different criteria. The website is www.calvert.com/know.html.

For those who do not want to engage in their own research, there are a number of professionally managed mutual funds as well as institutional money managers that offer socially responsible options. Ask your financial advisor to help you choose the ones that are right for your individual risk/return needs.

One important advantage of using mutual funds or institutional managers is their weight in terms of shareholder activism. In addition to the positive and negative screens, these managers will file shareholder resolutions with the companies they own in an effort to encourage them to improve in areas they are lacking.

For example, Trillium Asset Management, a SRI manager, has filed resolutions related to global warming, genetically engineered foods, sweatshop labor, global water scarcity and political contribution disclosure.

A coalition of SRI managers successfully petitioned Dell Computer to become the first U.S. computer company to publicly release a global recycling goal. The company committed to recycling 50% more used and obsolete computer equipment in 2005 than in 2004, a major step toward a sustainable business structure. In addition, by redesigning computer packaging, Dell has been able to save an estimated 1400 tons of waste per year.

Many people believe that there is one more major incentive for socially responsible investing: lower risk. In a survey commissioned by Calvert Funds in November of 2003, 71% agreed that companies operating with higher levels of integrity carry lower investment risk. Forward-thinking companies that embrace diversity and are aware and proactive about environmental issues have fewer liabilities presently and in the future, and hence less risk.

In a discussion on the case for early action to combat climate change, Dr. John Holdren, Professor of Environmental Policy at Harvard University said there are ?immense possibilities for firms and investors to turn challenge into opportunity, acting prudently and creatively to help society reduce the risks it faces from climate change?and making money doing so.? By integrating economic, environmental and social factors into your portfolio, you can accomplish two important goals. You can align your values with your investments, and set yourself up for future success.



Advisor is a registered principal offering securities through Linsco/Private Ledger, member NASD/SIPC.

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