Two Ways to Invest Responsibly

Posted by A. Caleb Hartley on March 5th, 2008 filed in investing

Now that we have learned some of the different vehicles that can be used to invest, it’s time to discuss the two main options you have to choose from when considering Socially Responsible Investing (SRI).  The two options are:

1. Screened Stocks and Mutual Funds – Many mutual funds have been formed out of “screened” stocks.  What this means is that an individual or an investment company has defined certain requirements that a company should meet to “deserve” investment.  These requirements may be based on social actions, environmental actions, or even on a religious basis.  There are stocks and funds that are rejected because the company builds weapons, or grows tobacco, or makes alcoholic drinks.  The SRI movement was started based on the idea that investing in stocks that are good – socially, environmentally, etc. – will reward those companies while putting pressure on companies that do not live up to the criteria.  Interestingly, there are also funds that invest in the companies that don’t live up to SRI standards because of the fact that they do what they do – called “sin” stocks.  SRI has been used as an example to screen stocks for any reason one can think of.
2. “Activist” Investing – Sometimes, individuals or groups purchase stock in a company that does not meet the requirements to be a typical SRI stock so that they may pressure the company to change its policies so as to be better stewards of the environment, of its employee’s health and/or freedom, or other reasons.  As “owners” of the company (buying stock in a company makes you a part owner in the company), they may be able to pressure the company from the inside to make changes that will benefit the Earth or society in some way.  This kind of SRI is generally not used to influence companies whose main business is the reason they do not meet SRI requirements, but on companies that operate in a “less-than-acceptable” manner making products or offering services that are not inherently bad for the environment or people’s health or some other reason.

Both of these options can be used to make a difference by your investing; however, you need to determine how involved you want to be in your investments.  If you would like to invest your money and let it be – “set it and forget it” – your best option will be screened stocks or funds.  This is an excellent passive way to reward “good” companies and pressure “bad” companies to change. 

If this “passive” pressure is too slow for you, and you have large piles of money falling out of your pockets everywhere you go, activist investing can be a way to create more rapid change; however, one of the dangers of activist investing is that the investors who are trying to solicit change may be seen as “troublemakers” or labeled as “tree-huggers” or “bleeding hearts.”  Additionally, sometimes forced change can seem good, but might not be as good, long-term, as voluntary change would have been.  Additionally, forcing change earlier than a company is ready for may delay future changes that would have been good for the environment, society, etc.  The leaders of the company may have seen the forced changes in a negative light, and will not be as open to other changes – even if they are not “forced” by shareholders.

Namaste,
A. Caleb Hartley

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Think about your investing options, above. Which form of SRI do you think fits you best, and why? Leave us a comment and explain!

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