Saving the Planet With Your Investments
MP3 RadioEver stop to think about the environmental and social practices of the corporations you regularly do business with? Most of us have, and we strive to only purchase goods and services from those that we feel good about. Yet, when it comes to our investments, something happens. More properly, nothing happens. That is, too few of us actually follow through by investing our hard-earned money with companies that are striving to minimize or eliminate their negative impacts on the environment, communities and their workers.
In the United States and the United Kingdom, socially-responsible investments make up approximately 11 percent of the market, while in Canada, they constitute little over three percent of the market. Yet, 84 percent of Canadian investors felt that the investment community should pay more attention to social and environmental factors, according to a recent Globescan study. Of these, 53 percent would like to have social and environmental factors considered in their investments. But 66 percent of Canadian investors have not talked to their investment advisors about these factors.
Why the huge disconnect between personal values and investment practices? A cynic might say that people are motivated solely by self-interest and the desire to maximize individual gain. The problem with cynicism, though, is it overlooks or dismisses anything that has the potential to disprove the core beliefs upon which it rests. There are several other possible, and more plausible explanations, for the disconnect. For example, investors may perceive that socially-responsible investing(SRI) unduly restricts the size of the investible universe, or that SRI means forgoing performance relative to conventional investments. Still others may question whether or not SRI can be measured in any meaningful way. Then there is the inherently conservative attitude of the investment community which perpetuates the eroneous view of SRI as being “flaky” and “risky.”
The reality, however, is vastly different. Not only do ethically screened investments perform as good as conventional ones (and there is even some evidence to suggest they may actually outperform them), but also mounting, hard evidence that they work in bringing about significant improvements in corporate behaviour. Screening is but one tool for achieving this. SRI also makes use of another highly effective leverage called shareholder activism or engagement wherein screened-fund managers seek to gain a corporation’s cooperation in addressing issues such as climate change or child labour. If talking nicely doesn’t work, than a carefully-worded resolution presented at the company’s next annual general meeting will. Just ask Home Depot’s executives what led them to phase out the sale of old-growth lumber and embrace sustainably grown and harvested wood products and you’ll learn that shareholder action by ethical fund managers played a very significant role in influencing the decision.
Perhaps the simpliest explanation for investor commitment to SRI is good old inertia, and that all is needed is a swift kick to the butt to elicit action. If that is true, than consider this article and the interview that accompanies it as that kick. If you care about the environment, local communities, and the working conditions of labourers, than you really have no excuse not to be directing a significant proportion of your investment dollars into screened funds or stocks. Equal attention needs to be paid to your pension funds.
In the interview, Brian Pinch of the Pinch Group within Raymond James, answers many of the basic questions that first-time or new socially-responsible investors might have. As well he tackles some of the most common misconceptions about SRI and provides keen insight as to why it works.
For those wanting more detailed information on socially responsible investing, the following organizations should prove to be very useful:
Social Investment Organization (Canada) www.socialinvestment.ca
Social Investment Forum (United States) www.socialinvest.org
United Kingdom Social Investment Forum www.uksif.org
European Social Investment Forum www.eurosif.org
