Responsible Investing: How you can align your investments with your values

Sometimes I get funny looks when I tell people what I do: socially & environmentally responsible investing and financial services. What’s that, they ask. Basically, it’s aligning your investments with your values.

In many areas of your life, you are probably very eco-conscious: you believe in the ethic of reduce-reuse-recycle, you eat local and organic, you ride your bike when possible, etc. But what about the way you invest your money? Do you know what you own? Are you putting your money where your mouth is?

Take a few moments to pull out your investment statements and check it out. If you have managed investments, you may have to dig a bit further. You can use Calvert’s Know What You Own tool at www.calvert.com to help you out. If you haven’t indicated to your investment advisor that the environment and social issues are important to you, then you’ll probably find some companies that you may not be proud to own: big oil, war profiteers, polluters, etc.

So what’s a socially and environmentally responsible person like you to do? Tell your advisor that you want to invest with your values, or find someone who specializes in socially responsible investing (SRI.)

To get started in your SRI quest, you should know the basics. There are three parts to investing responsibly: screening, shareholder activism and community investing. I’ll break them down for you.

You screen your investments based on the criteria that is important to you. The screening process is typically based on a number of factors including:

Corporate governance & business ethics

Environmental track records and sustainability

Fair & Safe Workplace

Safety of products manufactured

International human rights

Community involvement

You start out by running negative screens to exclude companies. For example, companies that do not provide adequate corporate governance documentation would be screened out, or companies manufacturing products unsafe to humans or the environment would be removed.

Conversely, you will also run positive screens. These screens strive to include best in class companies. For instance, several companies are very proactive in reducing their carbon footprint, and using non-toxic ingredients in their products. Other companies work to improve their communities, making significant investments in housing, jobs and other social programs.

While screening is very important, it is only a portion of the process. Few stock holdings fall into the best in class category. We believe that the most important aspect of socially responsible investing is shareholder advocacy and activism. Institutional investors including pension funds and others will file shareholder resolutions on a number of topics, from executive compensation to global warming liability. Their goal is to get these “middle of the road” companies to change for the better. There are many examples of companies changing their policies to be more social or environmentally friendly because of shareholder pressure. The most recent example is asking companies to be transparent regarding their political contributions, especially in the wake of the Citizens United case which made it legal for corporations to make unlimited campaign contributions.

The third component in the SRI process is community investing. This typically involves dedicating at least one percent and many times as much as five percent of the investment assets toward community investing projects. These projects are both domestic and international in scope and focus on microfinance, affordable housing and job retraining.

If you live your life based on your values, then I believe that you should consider using a socially responsible investing strategy. You can consider it putting your money where your mouth is.