Some investors can’t bring themselves to put money into companies that they believe are harming the environment. Others want nothing to do with arms manufacturers, tobacco makers, or gambling casinos. Still others say that companies with poor working conditions or unfair hiring practices are strictly off-limits.
What’s going on here?
Can investors really influence corporate behavior by refusing to invest in certain companies? And might they be sacrificing investment returns by doing so? Socially Responsible Investing, or SRI, had its beginnings in the 1980s when companies doing business in South Africa were shunned by both individual and institutional investors due to the continuing practice of apartheid in that troubled region. The pressure worked. Most U.S. companies eventually pulled out of South Africa, lending credence to the notion that investors who follow their conscience can make a difference in the world.
Now for the next question: are socially conscious investors sacrificing investment returns? One way to gauge the success of socially responsible investments is to look at the indexes. The Domini Social 400 Index comprises the largest 400 U.S. companies that have passed certain screens for socially responsible behavior. Companies involved in alcohol, tobacco, firearms, gambling, nuclear power and military weapons are excluded from the index. Included are companies that have positive social and environmental records based on the following issues: community relations, diversity, employee relations, human rights, and product quality and safety, environment and corporate governance. Comparing the DS400 to the S&P 500, we see that performance is similar:
| One-year | Three-year | Five-year | Ten-year | |
| DS 400 | 13.26 | 8.77 | 5.73 | 8.71 |
| S&P 500 | 15.79 | 10.44 | 6.19 | 8.43 |
Sustainable capitalism
Some socially conscious investors are taking the concept a step further by seeking out emerging companies that are exploring renewable energy and other solutions designed to save the environment. These are riskier bets than the companies comprising the DS 400 because their capitalizations are small and their technologies are unproven. But some of the nation’s biggest venture capitalists, including John Doerr and Steve Case, are putting money into “green tech” in the belief that it could be “the largest economic opportunity of the 21st Century” (Doerr). If the companies succeed, investors stand to do well; if they fail from an investment standpoint, their research and development efforts may still provide a valuable contribution to the overall goal of saving the planet.
| The terms “blended value” and “sustainable capitalism” have been coined to describe a mix of economic, social, and environmental value that is indivisible. |
The terms “blended value” and “sustainable capitalism” have been coined to describe a mix of economic, social, and environmental value that is indivisible. As Jed Emerson, one of the leaders in this arena, writes on his Blended Value website (www.blendedvalue.org): “Traditionally, we have thought of value as being either economic – and created by for-profit companies – or social – and created by nonprofit or non-governmental organizations. What the Blended Value Proposition states is that all organizations, whether for-profit or not, create value that consists of economic, social, and environmental value components – and that investors (whether market-rate, charitable, or some mix of the two) simultaneously generate all three forms of value through providing capital to organizations.”
Bambi Holzer, president of Bambi Holzer Financial Group, is the author of four books on personal finance. She is a Certified Specialist in Planned Giving (CSPG), a Certified Estate Advisor (CEA), an Accredited Investment Fiduciary (AIF) and a Registered Representative with Brookstreet Securities Corporation, member NASD, SIPC. She can be reached at 877-905-3100. This document is for informational purposes only and should not be regarded as a recommendation, an offer to sell, or a solicitation of an offer to buy any securities. Specific recommendations are made only based on review of a client’s individual investment portfolio upon request. This document is the opinion of the authors and does not reflect the opinions of Brookstreet Securities Corporation. Past performance is not a guarantee of future results. Investing in narrow economic sectors involves its own characteristic set of risks including, but not limited to, the risk of loss due to the inherent lack of diversification associated with concentration of assets in a specific, sometimes, emerging field.
