Excerpted with permission from the June/July 1999 issue of The Inner Edge. This article was originally adapted from "Investing With Your Values: Making Money and Making a Difference" (Bloomberg Press, 1999).
Given the central, powerful role of money and business--both in society and our personal lives--it is astonishing that so little attention is given to the social, ethical, and spiritual dimensions of money.
How can people include their spiritual, social, environmental, and ethical values when making important financial decisions? Why do so many conscientious, good-hearted people make investments that conflict with their own deeply held beliefs?
There are, of course, no easy answers. We have found that the status quo--where money and values are separated by an impenetrable wall--is rooted in an outdated mechanical worldview that sees everything as parts of a giant machine. When we shift toward a natural worldview (of interrelated living systems), a new sort of investing emerges: Natural Investing
Natural Investors are shunning conventional wisdom, which says we must abandon ethics when making financial decisions. People of all income levels from across the political spectrum are using Natural Investing to find profitable investments. The Social Investment Forum, a national nonprofit organization that promotes the concept, practice, and growth of socially and environmentally responsible investing, says that well over $1 trillion is invested today based on some sort of ethical criteria. That is almost one-tenth of all investment dollars.
|Investments based on social, environmental, or ethical criteria perform as well as, or better than, those based on financial criteria alone.|
Nearly every mainstream investment option now has a values-based equivalent. And you don't need a lot of money--several screened mutual funds and community banking options welcome small investors who can start with as little as $50. All that's needed is the willingness to identify and consider your personal values when making decisions about your money.
Answering the Skeptics
It takes courage to honestly examine the ethical component of one's investments and become aware of any inconsistencies. Many people try to avoid the issue by leaning on one or both of the following myths:
Limiting one's investment choices by using social, environmental, or ethical criteria results in lower financial returns.
Natural Investors do
voluntarily limit their choices, but this has not led to any systematic underperformance in the stocks they choose. In fact, solid statistical evidence shows that investments based on social, environmental, or ethical criteria perform as well as, or better than, those based on financial criteria alone.
In 1990, the Domini 400 Social Index was launched; it includes socially screened companies in a similar range of sizes and industries as the unscreened Standard and Poor's 500. From inception through December 1998, the Domini 400 has outpaced the S&P 500 with a total return 442% compared with the S&P's 366%. This is a truly remarkable feat, but it is only one of many studies that show a positive correlation between corporate responsibility and corporate profitability. So much for the myth that "good guys finish last."
Natural Investing is only for tree-hugging radicals and aging hippies.
Natural Investing in the United States traces its origins to Quakers and other Christians who could not live with inconsistencies between their beliefs and their investments. Today a diverse range of strategies is available to support investors with wide-ranging values, from conservative Christians to farm-belt traditionalists to environmental visionaries. Most screened mutual funds aim at a broad cross section of common interests. Natural Investors are not anti-business; nor are they only interested in fringe companies. For example, the Domini 400 includes many household names: The Home Depot, Xerox, Johnson & Johnson, Coca-Cola, and Bank of America. Although none of these companies is free of controversy, each has certain strengths that justify its inclusion in the index.
The Wheel of Natural Investing
A full range of financial objectives can be met with Natural Investing, using everything from conservative, government-guaranteed bank programs through socially screened mutual funds to high-risk venture capital.
The spokes of the "Natural Investing Wheel" is a map of the four major strategies that Natural Investors can use to bring their values into the financial world. They are:
1. Avoidance Screening.
This is the familiar method of choosing not to invest in industries that you do not wish to profit. Tobacco, weapons, and environmental polluters are some of the commonly-used screens. For example, Philip Morris wouldn't get through the avoidance screens of an investor who has a "no tobacco products" screen.
2. Affirmative Screening.
Also called "prospecting," in this method investors actively seek investment opportunities that are consistent with their vision of a positive future. This can include leading-edge companies in alternative energy and natural foods or large companies, even government agencies, that are addressing the social responsibility concerns of investors. Many prospectors buy stock in companies that demonstrate a high level of commitment to their workers, their communities, or the environment.
3. Community Investing.
This rapidly emerging branch of Natural Investing is especially useful for getting your money into the hands of grassroots programs and people, locally or globally, who labor under a thin margin. Community Investing initiatives include affordable housing, small business lending, targeted investment in both urban and rural areas of the country, and micro-enterprise development. It is an excellent way to put your savings to work and provide a "hand up" to those who need access to capital.
4. Shareholder Activism.
This potent strategy provides a means for changing companies from the inside. Shareholder activists have a wide range of tools available to them, including dialogue with companies on issues of concern, and sponsorship of shareholder resolutions when companies refuse to talk or dialogue breaks down. These methods achieved stunning results in the campaign to end apartheid in South Africa and are now being applied to a wide range of foreign and domestic concerns, such as sweatshops and excessive executive pay.
The world today reflects the unnatural separation of money and values. The United States is the richest country ever, and material progress has brought immeasurable benefits to the world. But the pursuit of wealth at any cost
is also responsible for human suffering, gross inequities in the distribution of this wealth, and environmental devastation. Our global economy is the central nexus of human activity on the planet; its influence radiates into every sphere of human endeavor. If we are to fulfill humanity's potential as stewards of a healthy, prosperous planet, each of us must connect with the seeds of our own natural desires and plant them smack dab in the middle of Wall Street and our entire economic system. As we learn to make money and make a difference, we are bringing essential human values back into the core of our society.