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Ethical Investment for the Socially Responsible Investor

By Edited Aug 7, 2014 2 2

Impact Investing Can Make You Money and Change the World

Be a Socially Responsible Investor

If you are a socially responsible investor, with strong family values, who also believes that we need to be good world citizens, there is now a way that you can choose to primarily purchase ethical investment products. Yes, it is possible to make money and support responsible corporations at the same time. Sometimes this is also called impact investing ... since the way you invest your money can have an impact on everything from the environment to poverty. 

Everyone wants to have an investment strategy that makes them money, and protects their assets, so that they can support themselves and their families. Many individuals, investment clubs, mutual funds and pensions now strive to choose stocks that are not only financially strong, but that also support corporations that are in wholesome industries, that minimize pollution when possible, and that treat their employees fairly, especially those employees who work in undeveloped countries. If you or your investment club decides to limit yourselves to ethical investment products, what do you need to know about this area of investing?

History of Ethical Investment or Impact Investing

Although it may have existed earlier, many people believe that ethical investing dates back to the time of the Quakers when they prohibited their members from dealing in slaves, because it involved the purchasing and selling of human beings.

In the 1960's, Martin Luther King encouraged events such as the Montgomery Bus Boycott which targeted a specific company for not treating all of its riders equally. After that, business boycotts became an accepted way to change corporate policies, and is still used today.

During the Vietnam War, many people refused to invest in Dow Chemical because they were the manufacturers of napalm, which was used against Vietnamese citizens and soldiers during the war. Beginning in the 1970's and continuing into the 1990's, many institutions avoided investing in South Africa or companies that did business in South Africa because of apartheid. Today, some people avoid investing in international corporations if they believe that their overseas employees are not paid fairly or have unhealthy working conditions.

Socially responsible investors have also turned their attention to environmental concerns. Some people prefer not to invest in nuclear reactor companies. Others avoid companies that make chemicals or that produce large quantities of pollution. Instead, these investors look for opportunities to invest in solar companies, wind energy, electric cars and similar green technology.

The interest in this type of investing has increased in recent years.  One good source of information about it is the book: "Portfolio for the Planet: Lessons From 10 Years of Impact Investing."

Industries that are not Considered Ethical Investments

Most people who are trying to be socially responsible investors will avoid investing in any companies that sell alcohol, tobacco, or weapons. Many investors also want to avoid investing in companies that produce porn or adult movies. They often avoid businesses that promote gambling, manufacture gaming equipment or that own casinos. Some socially responsible investors prefer to avoid industries that build equipment of any kind for the military. In addition, if an international company does not appear to treat their employees fairly, or they engage in child labor, many people will avoid investing in these companies, as well.

Other concerns for socially responsible investors are companies that pollute, perform animal testing, or produce harmful chemicals. These are general guidelines. Some investors have slightly different standards regarding what they believe to be ethical and unethical investing.

How to be a Socially Responsible Investor

It may seem that, when you read the list of all the types of businesses to avoid, there are no companies left in which to invest. However, socially responsible investing (also known as SRI) has become quite popular in both the United States and parts of Europe. It is estimated that as much as 11% of all the assets that are managed by professional money managers in the United States are in socially responsible portfolios. If you choose to invest in one of these professionally managed funds, you should compare their performance to each other, when possible, just as you would with any other investment. Investors are more likely to be satisfied with their investments when they feel that they are also profitable.

The demand for ethical investments in portfolios and pension funds has had a significant impact on money managers. For example, CalSTRS, the California State Teachers' Retirement System, divested itself of over $237 million in tobacco stocks because of pressure from the state's teachers.

If you wish to become a socially responsible investor, you can contact organizations such as Ave Maria Mutual Funds, Calvert Social Index, Grassroots Business Fund, and Pax World Funds about purchasing SRI funds that have ethical investments.

In addition, the Ethical Investing website gives a list of socially responsible individual companies, funds and other resources in the United States, Australia, Canada, Germany, Netherlands and the United Kingdom. For example, in the United States they list Celestial Seasonings, Gardenburger, Inc., Hansen Natural Corp, Healthy Planet Products, Whole Foods Market, Wild Oats Markets, Environmetrics, Inc. and many others. Anyone can go online to ethicalinvesting.com for more information. At the moment, they are particularly unhappy with Monsanto … calling it the worlds most unethical and harmful investment. You can read their report and decide for yourself.

In addition to investing in ethical companies as an individual, you can also see if your retirement funds are invested in a way that makes you feel comfortable. If you are part of a pension plan, such as CalSTRS, you can contact them to find out if they are trying to limit themselves to more socially responsible investments. If not, you can become an activist investor and see if you and your co-workers can influence the money managers who handle your pension fund's retirement decisions.

In addition to researching companies on your own, there are other ways you can invest ethically. For example, you can contact your religious leaders. Many organized religious institutions will give you suggestions about ethical investments they recommend, as well as those that they prefer you avoid. In addition, some large mutual fund companies have at least one socially responsible fund that you can select, when you are deciding which fund to purchase. Look for funds that are designated as SRI funds.

With a little research, you can find many reputable companies that you feel are ethical and that are in line with your personal values. It is possible to invest money successfully and be socially responsible at the same time. There is no longer a need to feel that you have to choose one or the other.

If you are interested in investing, belonging to an investment club, or in suggestions for handling your personal finances, you may also wish to read some of these articles:

Starting an Investment Club

Buy the Best Investment Club Accounting Software

Starting a FOREX Investment Club

How to Find Free Stock Research Websites

How to Use Value Line Stock Research Tools

The Long and the Short of Understanding Investment Terms

This Book is an Excellent Guide to Ethical Investing

Portfolio for the Planet: Lessons from 10 Years of Impact Investing
Amazon Price: $50.95 $42.48 Buy Now
(price as of Aug 7, 2014)
Discover how the way you invest your money can have an impact on the world and our future.


Jan 26, 2011 1:03pm
Excellent article! One way to change the world is through money. When enough people stop investing in a certain corporation, say a cosmetics company who tests on animals, then they will feel the financial pressure and hopefully change. It would nice to live in a world where companies weighed their practices and decisions on the based of ethics, but we don't. Hitting their bottom line is usually what it takes. Thanks for sharing.
Jan 27, 2011 8:34pm
It has never even occurred to me to think in terms of social responsibility when investing. Thanks for enlightening me. Well written article!
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