I read this question in a recent issue of the Yoga Journal magazine:
“I don’t want to support tobacco companies or environmental polluters, but my broker claims that socially responsible investing will cost me. How can I persuade my broker to make investments that align with my values?”
The official answer from the magazine pointed out how the reader should go about investing in socially responsible funds. Unfortunately the magazine doesn’t have the article online. I’d like to address some other issues not covered by the answer in the magazine.
First of all, this reader owns the investments, not her broker. If she wants to invest in a certain way, she doesn’t have to persuade any broker. The broker can give his or her opinion but the investor gets to make the final decision. Don’t be afraid. It’s your money.
Second, if socially responsible investing (SRI) is good for the world but it costs you, should you still do it? Sure. We can’t expect something good for nothing, can we? When push comes to shove, that’s the real test for our commitment. Are we ready to make personal sacrifice for the health and for the environment, or are we just paying lip service? If you want to do something good, be prepared to pay one way or another. If the cause justifies the cost, by all means do it.
Although I identify with the goals of socially responsible investing, I’m unsure about its effectiveness, especially when SRI comes in the form of avoiding investment in certain industries or companies. I’m not sure if we necessarily make the world a better one if we just don’t buy certain stocks. Buying a tobacco company’s stock doesn’t make the tobacco company produce more cigarettes. In most cases (except in IPOs), the stock just changed hands from one investor to another. The company didn’t get a penny more. It is still doing what it has been doing. If people who don’t like cigarettes all shy away from tobacco stocks, only people who don’t object to cigarettes will own those stocks. That will probably make the company become more aggressive in making and marketing cigarettes. So I’m not sure how not buying tobacco stocks is going to help reduce tobacco use in this world. On the contrary, if people who want to be more socially responsible own the tobacco stocks, they can elect like-minded directors and make the companies change their practice. Wouldn’t that be more effective?
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You are absolutely correct.
SRI is a concept dreamed up by Wall Street to take money from the naive.
They charge higher fees, and get investors who are satisfied with lower returns, because they “think they’re doing the right thing”.
This is a slippery slope. One could find something morally or socially questionable about any publicly traded company making a profit.
Who decides what’s socially responsible?
For example, are weapons manufacturers socially responsible? Most that believe in this kind of investing would say no way. But it is kind of hard to have the freedom to have practice what you preach without them now, isn’t it?
Ron Robins says
Interesting post on SRI! For anyone interested in socially responsible investing, they’ll find the latest global news and information at http://www.investingforthesoul.com
A free e-newsletter is also available.
Best wishes, Ron Robins
I personally think socially responsible investing funds are a scam too. They invest in companies that may not have a product and generally have lower returns. I think it’s better to invest in a diversified portfolio that does make you money and then donate the money to social causes you believe in.
Sameer G says
Sorry for being 10 years late to this discussion. 🙂 Still, I feel compelled to mention a few things.
It is disingenuous to claim that trading stock doesn’t give the company any money, and so doesn’t have any effect. While that’s true for a single transaction, if we all own / keep buying a certain company’s stock through our 401k contributions, we drive up that stock’s price, creating wealth for the company’s owners and employees, making it easier for the company to raise funding, expand and keep operating. In the limit, if everyone (or most people) refused to buy the stock of a certain company, it would get harder and harder for them to keep doing business, because even private investors eventually look to the public markets for an exit.
Each decision to not buy the stock of a company is a step in that direction.
Just like each decision to save water or pollute less is insignificant in itself, but significant in the aggregate.
Of course, each person has to make the decision of what is “socially responsible” themselves, in accordance with their own values.