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Investment Tips for Socially Conscious Women
More than 50% of the money invested in the United States belongs to women. Certainly, a good deal of these invested monies belongs to women of independent means. But, a great piece of this pie belongs to women through their pension funds, 401(k) plans, and similar financial management devices. And many of these women are interested in making socially responsible investments.
Socially responsible investments are those made in publicly held corporations that demonstrate policies and practices that appear in the public interest. These investments are made in corporations that practice and promote sustainability, environmental issues, equal rights and fair labor practices, manage and/or reduce emissions and hazardous waste, and other similar social issues. Socially conscious investors want to make money and to profit from their risk. But, they also want to make the money on business that does “good” things.
Given the way the stock market works, if enough investors favor the “good” companies, the “bad” companies will suffer because the value of their shares drops. A drop in the market value also cuts the incomes of senior executives who hold a lot of the shares as deferred income. Maybe this will get their attention.
Exception: Many stockholders retain their stocks or purchased their shares with the intention of protesting the company’s practices. They promote change from within, often resorting to “guerilla” tactics at stockholder meetings. They press for more transparency and heightened social awareness in policy and practice. They secure votes of confidence in corporation leadership.
Socially responsible corporations share characteristics including avoiding::
· Products, such as blood diamonds, tobacco, and armaments, which have undisputed negative impact on the well being of society
· Business practices with negative effects on the physical or human environment, regardless of the quality or positive impact of the product or service
Stocks and mutual funds in investments designated as “socially responsible” do make money. Some of them outperform the standard indexes. You can also hand pick investments focused on favorite causes, such as water conservation or animal treatment concerns. You can find funds that attract the special interests of Catholics and others that attract Muslims. There are corporations that please Republicans and others that favor platforms issues of the Democrats.
You can invest through brokers with avowed social interest bias, such as New Ground or Natural Investments. They will do what you want or bring investment ideas to you. And, you can invest through socially focused investment clubs, such as the one at Messiah College or the University of Pittsburgh’s David Berg Center for Ethics and Leadership.
You can follow performance of stocks and mutual funds that interest you if you know your way around the Dow Jones website, but you can also follow them on other indexes: Calvert Social Index, Citizens Index, and The Domini Index. There has been a substantial increase in the assets invested, the number of funds and stocks screened for social concerns, and the banks that pursue the same interests.
The ten year performance on the top 10 socially responsible investment (SRI) funds ranges from 5% to 7.16%. Overall, as measured by the Domini Index, the SRI stocks and funds hold their own with the Standard and Poor indexes. Specifically green funds have performed consistently but well below the S&P. According to the Global Market Index (GMI), the highest rated socially attentive corporations outperformed the S&P 500 by 16% over 5 years. Among the sources of information are The Social Investment Forum and its organization of Socially Responsible Investment professionals.
Successful investment in SRI stocks or funds requires certain assumptions:
· Investors need to self-assess and determine exactly what they mean by “socially responsible.” You may be able to find businesses that deliver on some issues, but it is not likely that they can deliver on all. For example, Wal-Mart scores A+ in some categories and D in others. Another company may re-cycle admirably but employ illegal aliens or exploit foreign labor.
· You need to figure out what you want. Wanting to earn a certain return may not be consistent with the wish to terminate a CEO’s performance or change corporate behaviors. For example, a corporation may be profitable in spite of the product liability litigation that results on the CEO’s watch.
· You need to understand the market and its operation. For example, values change constantly and may or may not have a one-on-one relationship with the company’s social or anti-social actions. You need to understand that the results that are meaningful are measured over 5 or 10 years, so there is little impact your money will have this week or this year.
· You need to appreciate that corporate culture is a very difficult thing to change, a very big shop to turn around. It does respond to swings in stock values, but it needs swings that are deep and broad to matter.
Recommendation: It is not within my authority to recommend one stock or another. But, a tip to women might be to look for corporations with female leadership or for funds or stocks with “women” in the name. We should not assume that women-run corporations are necessarily more inclined to green or socially responsible issues. However, there is some record of correlation between the two.
There is, for example, the Women's Equity fund that specifically channels investment towards companies with records of female leadership and practices that enable positive work/life balance.
Heads-up corporations have gotten ahead of this, reporting annually on their efforts in the areas of social concern. And, the concerned investors, with over $12 billion invested, may have a momentum in the works to help define what a corporation needs to be. One escape a negative corporation can pursue is to buy-up smaller companies with socially responsible reputations. “Big Tobacco,” for example, has diversified its interests broadly into markets and products that buffer their negative image. By doing so, the negative partner in the merger can skew the criteria. This demands vigilance and attention by the investor. Women would, then, be advised to research and study the market’s investments, to find a trusted broker with similar interests, or to follow the advice of a 401(k) model.