Suppose that as a result of scrimping and saving—and more than just a little hard work—you've managed to save a few hundred dollars. Chances are, you've got that cash safely stashed in a local bank account. As an alternative, why not consider investing your money where it'll not only do well but also do good? Thousands of people—from the managers of multi-million-dollar pension funds to individuals like you—are finding ways to save money that generate both healthy earnings and positive social change . . . by putting those dollars into "socially responsible" or "ethical" investment funds.
There are now more than half a dozen fund companies in this country that place their members' money only in investments that meet certain criteria beyond the usual projected-earnings figures. These guidelines might require, for example, that a company have a good record in environmental protection, equal employment, labor relations, and/ or employee safety. Some funds won't invest in liquor or tobacco companies, defense contractors, or utilities that own nuclear power plants . . . while others avoid firms that do business in (or with) South Africa. Still other funds go a step further: They seek out relatively new firms on the leading edge of change (such as innovators in alternative energy, housing, or food production) . . . and then balance their portfolios with investments in stable, long-established businesses to minimize the overall risk.
Of course, one person's idea of what is "ethical" or "socially responsible" may be quite different from another's, and there's significant diversity among the companies specializing in such investments. Each has a different philosophy, not only in terms of what constitutes acceptable corporate behavior, but also in regard to its own investment strategies and goals. With some careful shopping you should be able to find at least one fund to suit your needs and convictions.
The first social-investment firms were created during the late 60's and early 70's to serve churches that wanted money-management programs that reflected their interests and beliefs. As more and more individuals learned of these companies, however, the fledgling funds grew and proliferated . . . and they now represent a small, but increasingly significant, revolution in American business.
Most ethical-investment concerns fall into one of two broad categories: money market funds or mutual funds. Money market funds (which are generally recommended for short-term investments) buy U.S. government agency securities issued by departments—such as the Student Loan Marketing Association, the Federal Farm Credit Association, and the Small Business Administration—that meet established criteria. On the other hand, mutual funds (which are considered better for relatively long-term investments) buy a mix of stocks in large corporations and/or small businesses, bonds or notes issued by U.S. government agencies, and perhaps foreign securities, long-term bank certificates, and the like. The exact makeup of any given company's portfolio will depend on its particular approach to the market. Some firms are ultra-conservative and lean heavily toward bluechip stocks, while other companies favor potentially higher-yielding, but also more risky, investments.
The performance of funds using social criteria has been scrutinized by a number of investment analysis firms and research groups . . . and the studies have produced varied conclusions. While some such reports caution that limiting the types of companies in which a fund will invest can also limit returns, others maintain that firms employing ethical guidelines have performed as well as, if not better than, the others.
In fact, some managers claim that ethical investing is simply smart business strategy. "Finding companies that are going to serve social needs, not from a do-gooder stance, but in light of serving society's needs in the future . . . well, it's a way of finding innovative, promising firms," says Joan Barvaria, president of Franklin Research, a business that advises individual clients on socially responsible investing.
"In the past ten years, the funds have held their own . . . they haven't performed spectacularly, but all of a sudden there's a spate of new funds," adds Hazel Henderson, author of The Politics of the Solar Age: Alternatives to Economics and a board member of the Calvert Group's Social Investment Fund. "Suddenly, there seems to be a whole new marketplace for the ethical investor."
Indeed there is. From the Pax World Fund (which requires a minimum investment of just $250) to the Shearson/American Express Trust for Balanced Investment (which is intended for institutions and investors with at least $50,000 to deposit), there are now ethical-investment firms for almost everyone.
Begun in 1970 by the Methodist Board of Christian Social Concerns, the Pax World Fund is considered the granddaddy of socially responsible investment companies. This mutual fund has assets of $10.8 million and maintains a balanced portfolio of stocks and bonds. Pax avoids investments in companies that manufacture gambling equipment, weapons, liquor, or tobacco . . . and seeks those that it believes add to the quality of life. Included in its portfolio are firms that produce pollution-control equipment, food, housing, and medical care.
With assets of $5.6 million, the Calvert Social Investment Fund is comprised of both a money market fund and a long-term growth-oriented stock portfolio. Calvert automatically eliminates prospective investments in companies that are in any way involved with nuclear power, that produce alcohol or tobacco, that do business in South Africa, or that have poor records in pollution control or labor relations. Its money market fund favors small banks that provide credit in their local communities, as opposed to large multinational banks. The fund's stock investments reflect a preference for firms that employ and advance women and minorities, treat their workers well, and seek solutions to energy and environmental problems. The minimum investment required is $1,000.
The Working Assets Money Fund follows similar principles. Rather than investing heavily in corporate stocks, however, Working Assets places its money primarily in government-backed securities issued by agencies that promote housing, small business, higher education, family farming, and the like. It buys the guaranteed portion of Small Business Administration loans, for example, and also purchases Student Loan Marketing Association securities. You'll need $1,000 to initiate a Working Assets account.
Unlike the others, the Dreyfus Third Century Fund doesn't automatically exclude specific industries such as tobacco or liquor. Instead, Dreyfus compares the records of companies within a given field in such areas as product quality, employment practices, safety, and environmental integrity, and then chooses the best of the lot. With assets of $136.3 million, Dreyfus is easily the largest of the socially responsible funds, but according to some, it's also the least stringent in its screening policy. Dreyfus requires a minimum investment of $2,500.
By contrast, the New Alternatives Fund is the smallest of today's ethical firms—its assets total a relatively meager $220,000—and focuses on a very narrow range of investments: firms involved in solar energy and other forms of alternative power. As a result, the fledgling company (founded in 1982) is probably not for investors seeking absolute security or immediate income, but it does offer a place for those willing to put some venture capital into a developing industry. Minimum investment: $2,650.
Intended primarily for institutions, pension funds, and other large depositors, the Shearson/American Express Trust for Balanced Investment is headed by Robert Schwartz, a leading figure in ethical investing. The Trust screens not only its potential investments but also its prospective corporate investors on the basis of their records in employment, labor, and environmental policy. It also automatically excludes firms doing business in South Africa. The minimum investment required is $50,000 or $100,000, depending on the type of account involved.
Of course, some people will want to take a more direct hand in investing their money, and will choose for themselves the stocks, bonds, and other securities that they feel support truly responsible companies and agencies. But for those who don't have the time, inclination, or expertise to manage their own investments, the funds listed here offer a way to pool resources with others of similar viewpoints, and to benefit—both monetarily and otherwise—from the resulting collective clout.
The effect of this movement can only be positive. During the 60's and early 70's, people marched in the streets to express their convictions. Today, many are taking a different, quieter, but perhaps more effective tack by putting their money where their beliefs are (and by not putting their money where their beliefs aren't ). Instead of shouting for change, they're investing in it.
Those of you who'd like to find out more about ethical-investment funds, or who are interested in choosing your own securities on the basis of corporate conduct, may be interested in the following organizations and publications.
Center for Economic Revitalization
The Center publishes three newsletters: Good Money (bimonthly, an excellent source of detailed investment information), Netbacking (a supplement to Good Money, in which subscribers share skills and resources), and Catalyst (alternating bimonthly with Good Money, focuses on companies and organizations).
Interfaith Center on Corporate Responsibility
An organization of primarily church-affiliated investors. It publishes The Corporate Examiner, a newsletter that keeps a watchful eye on corporate activities, 11 times a year.
Investor Responsibility Research Center
It publishes a monthly newsletter, IRRC News for Investors, which reports on issues and controversies in the financial world.
Council on Economic Priorities
A nonprofit research organization that reports on corporate performance in such areas as politics, energy, and the environment. It publishes the Council on Economic Priorities Newsletter 8 to 12 times a year.
Renewable Energy News
A monthly newspaper on developments in alternative energy. It contains the "Renewable Energy Stock Report" column by Steve Biddle.
Before investing in any mutual or money market fund—or directly in any company, for that matter—you may want to take the following steps:
Educate yourself. If you're a newcomer to the world of investing, you'd do well to teach yourself the basic terminology and concepts involved. Many community colleges offer courses on the subject, and any neighborhood library will prove to be a good source of information. [EDITOR'S NOTE: There are a number of excellent books available today on investing. One that seems to do an especially good job of approaching the subject—and money management in general—from the beginner's point of view is Sylvia Porter's New Money Book for the 80's.
Assess your financial situation. Consider how much money you can really afford to invest. Although the firms focusing on social criteria allow members to redeem their shares for cash at any time, it's usually best to invest only "extra" money . . . and certainly not the dollars you'll need to pay next month's bills.
Contact the fund or company. Write or call (many funds have toll-free numbers) and ask them to send you a prospectus and other background literature.
Read the prospectus carefully. Required by the Securities and Exchange Commission (SEC), a prospectus is a report that includes information on a company's (or fund's) management, background, investment strategies, expected yields, and other necessary data. In most cases, the firm will provide detailed statistics on past earnings performance, too. A note of caution, though: The SEC does not regulate the contents of a prospectus. The accuracy of the information, and the desirability of the investment, are matters for you to determine . . . so study the literature thoroughly.
Ask questions. If there's something in the prospectus you don't understand (many are written in business/legal lingo), call or write the fund and ask for clarification.
Fill out your own paperwork. Most funds will include an application form when they send you their prospectuses. If you've studied carefully and feel confident you're making a sound investment decision, go ahead and fill out the forms yourself . . . you'll save a broker's fee. On the other hand, if you're not really sure that you're doing the right thing and feel that you need professional advice, do consult a reliable broker.
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