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Socially
Responsible Investing / May 2006 Justus
Morgan |
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After
spending a recent Saturday working to create a garden to benefit a local
public school, I decided to give some thought to how my professional
expertise could be used to benefit other worthwhile causes. Fortunately, I am
not the first to explore this opportunity as there is a segment of the
investing universe already aimed at making a positive impact not just on your
bottom line but also society’s. Commonly called Socially Responsible
Investing (SRI), this approach to investing combines earning money with
supporting causes or principals the investor believes are important. There are
a number of approaches socially-minded individuals can take to achieve their
goals which typically fall into two schools of thoughts. The first which is
espoused by the Nobel Prize winning economist Milton Friedman is that the
sole purpose of business is to increase profits for the shareholders. The
shareholders can then donate their profits to whatever causes they see fit.
An underlying assumption to this model is that supporting socially
responsible companies means supporting less profitable companies which is not
always the case. The other
school of thought is a socially responsible investor should not set their
principles aside when it comes time to making selections in their 401(k)
plans or directing where their money gets invested. According to the Social
Investment Forum’s 2005 report, over two trillion dollars are invested based
on SRI strategies. There are
several methods available for those inclined to mesh their beliefs with their
investments including SRI screens, shareholder activism and direct community
investment. SRI screens sort through a list of companies and narrow those
down based on specific criteria. The screens can cover companies’ products (such
as tobacco, gambling or munitions) or their behavior (such as environmental
practices or corporate governance). Two of the more popular screening firms
are Domini and Calvert. Each firm has a variety of
mutual funds that invest in stocks and bonds that meet specific criteria. To
learn more about each company’s funds, visit www.domini.com
and www.calvert.com. The next
method practiced by socially responsible investors is shareholder activism.
These are the folks who purposely buy shares of companies whose behavior they
oppose so they can propose resolutions to change the company’s behavior.
There are specific rules created by the Securities and Exchange Commission
which must be followed to propose resolutions for individual companies. In
order to learn more about this process and other socially responsible
activities, visit www.socialfunds.com. A
relatively new development in the SRI field is the ability for smaller
investors to make direct invests in community development initiatives. The
Calvert Foundation (www.calvertfoundation.org)
has developed Community Investment Notes which allow individual investors the
opportunity to lend their money to support specific social causes such as
poverty, affordable housing or small business development either in the Socially
Responsible Investing provides an opportunity for socially active individuals
to blend their beliefs with their investments. While the performance data on
the use of SRI strategies is mixed compared to the overall stock market, if
the alternative is not to invest at all, SRI can certainly provide motivation
to make a change in your financial situation as well as the community’s. Justus Morgan is an
Enrolled Agent through the IRS and an Associate at Financial Service Group,
Inc., a registered investment advisory firm in |