How and why to express your values to companies: the new ClimateCounts scorecard & much more

ClimateCounts.org has just released their new scorecard on companies' climate change policies-- the extent to which companies are measuring, disclosing, and reducing their contributions to climate change. This PDF pocket guide gives you scores by sector of 56 major companies. You can quickly see some dramatic differences; for example, in the Electronics category, IBM leads the pack with a score of 77 out of 100, while Apple trails with only 11. Coke (61) beats Pepsi (37). And while McDonalds only scores 27, Burger King and Wendy's are both worse, at dead 0. The highest scorer overall is Nike (82.) You can read more details in these profiles.

This scorecard is just one of the tools I use to understand the social and environmental impacts of the companies that make the products I buy (and the ones I invest in via mutual funds.) Others include the Corporate Equality Index's ranking of LGBT policies (my post here), 100 Best Companies to Work For (my post here), the Better World Shopping Guide, and certifications like fair trade, union-made, certified humane, and organic. (I also try to buy from small and local businesses when I can; not only does this express my values in itself, but makes it much easier to communicate my values directly to the local owners.)

Why's it important to me? When I buy products, I try to be as conscious as possible about the way they were produced. As the end user, they were essentially produced for me-- and so I feel that the items produced in my name should have the most positive or least negative social/environmental impacts possible. It's too easy for everyone down the line to deny any responsibility (the company can say they make their choices because of what I as a consumer/shareholder demand; I could just say "the company makes all the decisions, I just buy things, I can't help it!") So I use rating systems like Climate Counts to be more conscious of what companies are doing, and hence what the effects of my own choices are.

But I also want to tell companies about my values and let them know that there are things more important to me than money, so they don't make choices based on the false assumption that my #1 priority is the lowest prices (or the highest stock returns.) There are a few different ways I try to send that message:

• Buying from companies that do better in the areas I care about. I think this is important, partially just as a principled act of taking personal responsibility, but also because if enough people do it, it can affect companies' choices. The challenge with this strategy, though, is that generally the companies don't know why you are or aren't buying something.
• Investing in mutual funds that push for the things I care about. My retirement money is in socially responsible mutual funds, ones which push companies they hold stock in to act in more socially and environmentally responsible ways. So my retirement savings give those funds more weight to bring their shareholders' values to the table in discussions with companies, and more votes when shareholder resolutions on corporate social responsibility (CSR) come up. Traditional mutual funds are usually pretty bad about CSR resolutions, as you can see here-- many of them pratically never support them (Vanguard voted yes on 5% of CSR resolutions in 2007, Fidelity only 2%) and even those with the best records (like TIAA-CREF which voted yes on 40%, Schwab at 36%, or Goldman Sachs at 24%) are still pretty poor. [See
  When your mutual fund speaks for you, what does it say?]
• Actually directly telling them what I care about! One of the neat things about the ClimateCounts.org website is that on the profile pages for each of the 56 companies, there's a link at the bottom that says "Click here to tell this company you think Climate Counts!" It gives you a form to e-mail the company to tell them that you read the information about their record on climate change, and that you consider yourself a climate-conscious consumer. There are other organized campaigns, like Co-op America's actions (tell car companies to improve fuel effiency! thank magazines for using recycled paper! and more!) Or you can just look up the right e-mail address and tell companies your thoughts all on your own (when it's a local business, it's even easier and more personal.)

Do you try to express your values to companies, and how? If you don't, why not? What do you think are the best strategies, and are there things I'm missing? (I left out lobbying politically for regulations and/or incentives, which is really important but is more about our roles as citizens than consumers/investors.) Are there other good sources of information that you use to inform your decisions?

Is your money funding genocide? What can you do about it?

What's happening in Darfur, and what does my money have to do with it?

I'm not going to attempt to explain the situation in Darfur in depth (so please read up about it yourself) but here's a short summary from the Sudan Divestment Task Force:

In response to conflict with Darfurian rebel groups in February 2003, the Sudanese government, working with Arab militias called 'Janjaweed', began sponsoring wholesale ethnic cleansing of non-Arab Darfurians, almost all of whom had NO direct affiliation with the rebel groups. Since February of 2003, over 400,000 Darfurian civilians have perished. 2.5 million have been displaced due to violence, nearly 4 million are now reliant on humanitarian aid, and 90% of Darfur's villages have been looted or destroyed. On July 23, 2004, the U.S. Senate and House of Representatives unanimously adopted a joint resolution declaring the atrocities in Darfur to be genocide.

Companies that enrich the Sudanese government help it fund the violence-- oil companies that have partnered with the government to tap Sudan's oil resources are especially problematic because over 70% of Sudan's oil revenues go towards military expenditures. Many companies which operate in Sudan have instituted policies that recognize the situation and attempt to mitigate their involvement, but some have rejected this and those companies have become targets of activists working to improve conditions in Darfur and end the conflict.

The activists only target companies that 1) do business with and enrich the Sudanese government (mostly oil companies); 2) have no significant benefits for the well-being of underprivileged Sudanese; and 3) have refused to institute corporate governance policies that address their contribution to the situation in Darfur. They are given a chance to respond to shareholder engagement tactics before they are targeted for divestment. (Learn much more about this "targeted divestment" approach here.)

And the government of Sudan is paying attention-- nine companies have left or are planning to leave Sudan since the divestment campaign started, and the government is taking out ads and writing op-eds opposing the divestment movement. (Learn more about the arguments for the efficacy of divestment here.)

Click here for an easy screening tool that will tell you if your mutual fund holds one of the targeted companies. You can also download a regularly updated report that lists the individual companies at this link.

I support the idea of divesting from these companies in principle, but I don't want to switch mutual funds and/or I want to make a difference on a larger scale. What else can I do?

There are many ways you can get involved:

• Vote in shareholder votes for genocide-free investing, starting this March for Fidelity. Shareholder votes around mutual funds' approach to genocide and crimes against humanity are being proposed and scheduled for a variety of mutual funds, and there will be votes for shareholders of dozens of Fidelity funds this spring, starting March 19th. Check this link for the applicable date for each fund and look out for your ballot in the mail. In most cases, the text of the resolution is:
• The Board will institute procedures to prevent holding investments in companies that, in the judgment of the Board, substantially contribute to genocide or crimes against humanity, the most egregious violations of human rights.
• Tell major mutual fund companies that you believe in genocide-free investing. Investors Against Genocide has a tool set up to help you e-mail that message to over a dozen investment companies-- if you're invested with them, you can send a message that lets them know that, and you can also send a general message to all of the companies. The list includes, but is not limited to, Fidelity, Vanguard, T Rowe Price, HSBC, and JP Morgan Chase.
• You can also sign this petition that goes to a shorter list of companies.
• Tell your state, city, university, or alma mater that you don't want your tax, tuition, or donation dollars invested in genocide. The Sudan Divestment Task Force has a great tool that lets you see what campaigns are active in certain states, cities, or universities in the U.S. So far, 22 states, 16 cities, and 59 universities have divested. If yours haven't, get involved in the campaigns or start one of your own!
• If you're not in the U.S., check out what's going on in your country. This site has links to what's going on in more than a dozen countries, from Canada to the UK to Japan to South Africa.

How can I find more information about investing in mutual funds which make a point of avoiding genocide and try to be socially reponsible in other ways, too?

Check out this wonderful tool that helps you learn about dozens of socially-responsible mutual funds' performance, screening criteria, proxy voting policies, and more. And you can read some of my previous articles on socially responsible investing (SRI), including:

• What is Socially Responsible Investing (and banking) all about?
• Guide to SRI options
• The diverse motivations for socially conscious financial decisions
• Tough questions on SRI-- and (my) answers

What do you think about the Darfur divestment campaign? Do you believe divesting from these target companies is a good idea? If so, have you taken any action?

Companies with happy employees have better stock returns

Employee satisfaction is correlated with higher stock returns, according to an award-winning paper by Alex Edmans, finance professor at the University of Pennsylvania's Wharton business school.

Edmans found that firms making it onto Fortune's 100 Best Companies to Work For list earned more than double the returns of the overall stock market between 1998 and 2005, and also consistently performed better when matched directly against companies in the same industries and with similar characteristics.

The 100 Best list, which is two-thirds based on employee satisfaction surveys, is full of employers who offer high pay, great benefits-- like fully-paid health insurance, on-site child care, and paid sabbaticals-- and a committment to their employees' work-life balance. But while some might expect that these sorts of pricey investments in workers would hurt a company's bottom-line, and urge policies that keep wages and benefits low and work hours high, Edmans' study suggests otherwise.

Workers' satisfaction and well-being is just one of my priorities for socially responsible investing (SRI), but it's an important one. Some of my retirement money is in the Parnassus Workplace Fund (PARWX), which invests in companies with happy, satisfied employees and is advised by the co-author of the Fortune 100 Best list. I chose it for its social returns, not its financial returns-- but I have to say it doesn't hurt to hear that it's probably financially smart as well!

Related posts:

• Socially Responsible Investing series:
• What is Socially Responsible Investing (and banking) all about?
• Guide to SRI options
• The diverse motivations for socially conscious financial decisions
• Tough questions on SRI-- and (my) answers
• Why GLBT-friendly policies are smart for businesses and investors

When your mutual fund speaks for you, what does it say?

Every year when companies have their annual meetings, there are a series of resolutions for stockholders to vote on.  Many of these are introduced by the company and have to do with things like confirming board members, but there are also increasing numbers of resolutions introduced by shareholders, often having to do with issues of corporate social responsibility (CSR). 

 

These votes are only advisory, but they express the positions of shareholders on the company's approach important social and environmental issues, and often lead corporate management to take action.  Resolutions are filed every year on issues from environmental impacts to non-discrimination and diversity to animal welfare to executive compensation to political contributions to human rights and many, many more.

 

If you hold stock directly, even a small amount, you're entitled to vote on these resolutions yourself.  But if you hold stock through mutual funds, the mutual funds vote for you.   And different mutual funds treat proxy voting very differently.

 

An analysis of the voting records of dozens of mutual fund families found that in 2006, mainstream mutual funds supported just 11.3% of CSR shareholder resolutions, compared to socially responsible investing (SRI) funds, which supported 74.9% of those resolutions. 

 

And a closer look at the mainstream funds reveals wide disparities.  TIAA-CREF supported 43.7% of the CSR resolutions, JP Morgan supported 25.6% and Goldman Sachs supported 18.8% of them.  But American Funds supported only 2.7%, Vanguard 2.3%, and Fidelity 0.8%-- four or less votes in favor of CSR in each case.  And the latter three funds control more than two-thirds of the U.S. mutual fund market.  (You can find information on the CSR voting records of ten major funds in this article, and many more at this website.)

 

These funds, and many investors, say that corporate social responsibility is irrelevant to a company's success.  But actually, there can be financial consequences to corporate irresponsibility-- from fines to lawsuits to bad PR to decreased productivity to being left behind by changing trends.  And beyond the dollars and cents, some investors are troubled by making money in ways contrary to their values, and would be happier if the companies they invest in would change their ways. 

 

If your mutual fund is not voting on shareholder resolutions the way you'd prefer, what can you do?   One option is to make your feelings known, either by contacting them directly or through coordinated campaigns (like this appeal on climate change to Fidelity, Vanguard, and American Funds).  Another, more dramatic choice?  Pick SRI mutual funds with a track record of not only voting "yes" on CSR shareholder resolutions, but often actually introducing those resolutions and negotiating with corporate management for change.

 

Where do your mutual funds stand on these issues?  What are their proxy voting policies?  Does it matter to you?

 

Related posts:

• Socially Responsible Investing series:
• What is Socially Responsible Investing (and banking) all about?
• Guide to SRI options
• The diverse motivations for socially conscious financial decisions
• Tough questions on SRI-- and (my) answers
• Why GLBT-friendly policies are smart for businesses and investors

My guest post on Socially Conscious Banking is up at "Get Rich Slowly"

Didn't want to post this yesterday to distract from the Carnival, but I have a guest post up at Get Rich Slowly:  Community Investing and Other Socially Conscious Banking Options.  Please go check it out if you haven't seen it already! I spent a bunch of time on it and am very proud of how it turned out.  (I am not sure what the etiquette is around guest posts; I would like to put the post up here at some point, but it certainly won't be at least until J.D. gets back from vacation in a couple weeks and I can ask him about it, so I'd suggest you read it there for now.)

Excerpt:

When you put your money in a bank to earn interest, the bank is actually turning around and loaning your money out again, to earn enough to pay you plus turn a profit.  When you invest in a typical bank, the bank makes investments it thinks are best based solely on financial criteria, and you don't know where the money is flowing — it could be spent on manufacturing cluster bombs or financing companies that enrich and support the government in Sudan , to name just a few of the unsavory possibilities. 

Other financial institutions, on the other hand, use a broader set of criteria — making investment decisions based on a combination of financial and social and/or environmental factors.   This doesn't just mean avoiding negative investments — it allows funding to be targeted to specific causes in order create positive social and environmental impacts...

There's a wide range of community development/socially conscious products available, from checking and savings accounts to money market accounts and CDs, at hundreds of financial institutions. In general, the interest rates are considered market rate and are roughly comparable to what you'd find at an average bank– although they're not always going to match the very top rates available.  Here are some of the highest-earning (as of 7/07) and/or most interesting options I've found: [click to read the full article]

Socially Conscious Gas Guide, Part 1: Environmental Rankings

I'd be remiss if I didn't start off by stating that the most socially conscious gas choice you can make is not to buy it at all, or barring that, to buy less. So try walking/biking more, car-sharing, and getting better gas mileage, for starters.

Nonetheless, most of us will be buying gas at least occasionally, and for many of us, we do it all the time. And gas is a very unique purchase in many ways-- we typically have almost no brand loyalty and often a lot of options. So it's worth exploring what the social and environmental implications are of the brands we choose.

This is going to be a multi-part guide, since there is a ton of information I've found to share, but we'll start with the impact these gas companies have on the environment. There are a lot of information and rankings out there, which I tried to compile for you in one place. (Let me know if you know of more for me to add!) So without further ado:

Specific Environmental Issues/Areas

Corporate Governance and Climate Change rankings from Ceres:

• BP: 90 (out of max 100)
  
• Royal Dutch Shell: 79
• Statoil: 72
• Total: 62
• Chevron: 57
• Anadarko and Sunoco: 39
• Amerada Hess, ConocoPhillips and ExxonMobil: 35
• Less than 35:
• Marathon (26), Occidental (25), Valero (24), Apache (22), Tesoro(15), Burlington (13), Devon Energy (11), El Paso (9), Murphy Oil (6), Williams (3)
  

Renewable energy strategy and investment, Jantzi Research (looks at 23 companies, skewed to Canada):

• High performance: BP, Shell, Suncor
• Low performance: Burlington, Marathon, ExxonMobil

The Toxic 100-- top air polluters in the US:

• #3: Conoco-Phillips
• #6: Exxon-Mobil
• #22: Tesoro
• #28: Valero
• #55: Sunoco
• #64: Chevron
• #81: Amarada Hess
• #84: Marathon
  

Refinery Eco Ratings, Better World Handbook:

• Sunoco: +40%
• Chevron: +18%
  
• Citgo: +17%
• Conoco Phillips: 0
  
• Total: 0
  
• BP: -10%
• ExxonMobil: -33%
  
• Shell: -43%

[Methodology is not explained but I'm pretty sure this is looking at the % of refineries that rank either high or low in pollution... ie 2 good refineries out of 5 total is 40% for Sunoco, while 1 good refinery and 4 bad refineries out of 7 for Shell is a net of -3/7, or -43%.]

Overall Environmental Ratings

Innovest's EcoValue21 rating (AAA best, CCC worst):

• Shell: AAA
• BP: AA
• Suncor: AA
• Marathon: B
  

Jantzi rankings[PDF] environmental subscore, Canada-based:

• Nexen: 7.6
• Petro-Canada: 6.3
• EnCana: 5.4
• Suncor, Shell Canada, Syncrude, Imperial Oil: 5.0
• Talisman: 4.9
• Husky: 4.0
• Canadian Natural Resources: 3.0
  

Sierra Club's "Pick Your Poison" Rankings:

• Top of the Barrel
• Sunoco
  
• BP
• Middle of the Barrel
• Citgo
• Valero ie Corner Store/Shamrock/Ultramar/Stop N Go/Beacon
  
• Chevron/Texaco
  
• Shell
  
• Bottom of the Barrel
• ConocoPhillips ie 76/Conoco/Phillips 66
  
• ExxonMobil

Coming up next... a look at the human rights/workers' rights & safety/etc aspects of these companies, and an attempt to sum up and draw some conclusions.

Socially Responsible Investing/Socially Conscious Finances: Tough Questions

There are a lot of questions and critiques of socially responsible investing (SRI) and other socially conscious financial approaches, and I don't want to run away from them because I think there are good answers (or at least a good discussion to be had) for most. Here are some tough questions I've heard; feel free to tack on your own in the comments if you think I've missed any.

This is Part 4 of a semi-organized series; see also Part 1 (the basics), Part 2 (some specific SRI options), and Part 3 (the diverse motivations for SRI).

Don't you end up financially worse off if you're a socially conscious investor?

• Maybe yes, maybe no. Socially conscious mutual funds get roughly the same returns as other mutual funds, although obviously there's wide variation, and it's more challenging to diversify if you're SRI-only. (Here are some studies on the question.) Community development banks typically provide lower returns than conventional banks, but the margin varies from very small to significant.

Why not try to end up with as much money as you can and then give a lot to charity?

• This is a personal choice, but there are a couple of reasons I do it.
  
• Some are more philosophical and general: I believe in the fundamental concept of involving social values in financial decisions, and I think we'll all be better off if that approach grows.
• But I also believe that in some cases, especially with options like community development banking, participating may actually provide greater benefits than giving to charity. For example, say I have $10,000 in a community development savings account/CD/money market account at 2%. (My MMA, at Domini, is actually over 4%, but not every option is that close to the highest rates.) I could put that $10,000 in an high-interest online savings account and make 5%. Over the course of a year that's a difference of $300. Is there more benefit in giving that $300 to charity, or making $10,000 available to be invested in financially under-served communities? On the one hand, one has to be repaid and the other doesn't; on the other hand, we're talking 33 times the amount of money.

You buy stock from other shareholders, not the company, so why would the company care whether you own their stock or not?

• The CEO, top management, the board, etc. have lots of stock options, so even if the "company" doesn't care about the stock prices, the actual people running it do!
• The company's responsible to shareholders for results-- ie, higher stock prices.

Well, I don't believe that avoiding bad actors' stock even affects the prices at all-- so many investors are out there that when socially conscious investors avoid a stock, others will see a great bargain and snap it up. So what social benefit would there be to get involved in SRI?

• Shareholder advocacy! If you own stock in a company, you can vote on proxy resolutions that urge companies to be more socially responsible. Socially responsible mutual funds, backed by the strength of how many shares they own, can enter directly into dialogue with companies to effect change.
• Building awareness and affecting others. The more people participate in SRI, the more friends and family and neighbors and coworkers will hear about it, and the more news coverage and blog posts there will be about it.
  
• An SRI effort to avoid a company often leads to bad PR (which no one likes!) And that bad PR might lower the stock prices indirectly, even if your socially conscious avoidance of the stock doesn't do so directly.
  

Don't many SRI mutual funds invest in companies that are pretty lousy? Aren't they just picking the lesser evils?

• Basically, yes. It's hard to get away from this. If you look at any SRI fund's holdings, you'll probably find at least a few companies that make you gasp and cringe.
  
• But the one benefit of owning stock in questionable companies is the aftermentioned shareholder activism-- the leverage to push them to change. Take a look at the work the mutual fund is doing to improve the problem issues with that company before you decide to write the fund off. Then if you still feel uncomfortable, you can try to find a better one. (Good luck! And I mean that in all earnestness!)
  

Doesn't SRI just help corporations "greenwash," by pushing for and praising small changes and therefore deflecting attention from deeper problems?

• This is the eternal question/dilemma, and it's bigger than SRI. Do you encourage and reward small steps because they're movement in the right direction, or does that just lower the bar and decrease the chances of bigger change? There's no easy answer.
• I can say that although this is probably true in some cases, there are other cases where serious, substantive change has occured thanks to SRI. The biggest and most often cited is ending apartheid in South Africa, which SRI divestment campaigns contributed to. But there are many other examples that are real and meaningful if not so dramatic.
  
• In the end, it comes down to what you feel comfortable with. As for me, I'm alright with "some progress," at least for now. And I'll work towards the bigger, deeper changes through methods outside of my financial decisions.
  

What if I don't believe in corporations and the stock market at all? Corporations have a singular focus on profit to the exclusion of all other values. And instead of siphoning off profits for distant stockholders, that money should go to the workers and/or lowering prices for consumers. Why should I participate in a system I oppose?

• Maybe you shouldn't. There's a lot to be said for keeping your financial decisions consistent with your principles, regardless of whether that accomplishes anything or not. And although just one person avoiding the stock market won't cause it to collapse, every movement and social change is made up of a lot of individual choices building on each other. (The stock market isn't the only form of socially conscious investing, though-- take a thorough look at community development financial institutions.)
• That said, I happen to agree with the hypothetical "you" asking the question, and yet I still own mutual funds invested in the stock market. I do feel conflicted about supporting systems I oppose. Here are the reasons I do it anyway:
• Having my retirement savings in the stock market means I'll end up in better financial shape. To some extent, this is just personal "selfish" materialism; however, I also think about it with the rationale that the more secure my retirement becomes, the more freedom I will have to do the work that I feel is most meaningful and makes the most positive change in society, regardless of how well it pays. (I've explored some of my thoughts and feelings about this here and here, on whether this is a rationalization and a cop-out or a valid approach. No answers yet!)
  
• The mushy middle. I'm in the stock market for retirement, but not for my sizable medium-term savings. I invest in mutual funds, but ones that have higher fees/expenses thanks to their social screening and shareholder advocacy. I'm torn by conflicting desires to make more money and be consistent with my values, so I stake out turf in the middle.
• I also believe that, as a matter of practicality, it will be easier to convince the general population to integrate social values into financial decisions than to toss out corporations and the stock market altogether; my participation in socially conscious stock-market investing helps promote the former approach whereas avoiding investing altogether promotes the latter. (Of course, there's certainly a case to be made that developing a more "palatable" corporate/stock market system helps shore up the system even more and actively works against broader, deeper change. But I personally don't buy that comprehensive changes are likely anytime soon regardless.)

What if I believe that "the social responsibility of business is to increase its profits" and that social values just don't belong in these kinds of financial decisions?

• Then I guess we disagree entirely, and I haven't the space or inclination to argue the point here. I would be more than glad to do it another time, though, if there are any takers-- we could have a thorough back-and-forth, posted on my blog (and yours if you have one).

So, what have I missed? Any other tough questions to throw at me?

The diverse motivations for socially conscious financial decisions

I've tried and failed for months now to write a post addressing criticism of SRI/socially conscious personal finance strategies. Gradually it's occured to me that my problem is the diversity of reasons (or perceived reasons) for pursuing such approaches; if you misunderstand why people are doing something, your critique and their defense are going to go right past eachother.

So I thought I'd start by laying out some of the reasons I can think of for socially responsible financial decisions (I'm defining that as including not only investing and banking but also shopping/consuming):

• "I want to have a direct, positive social impact."
  
• This is certainly an admirable goal, and one that many of us do indeed have. But it seems like detractors get the impression that this is our only motivation, and try to tear down socially conscious investing by debunking it. And in some cases they can do a good job of that. While there are certainly some socially conscious financial practices that I think are solidly, directly positive-- community development banking, for one-- it's also true that it's harder to find a clear link between, say, investing in a socially responsible mutual fund and seeing a direct positive impact in the world. If that's your only motivation, you're likely to be disappointed.
• "I want to have an indirect effect and influence other people."
  
• This is probably the biggest one for me. I know that I alone have a very small impact. But I believe very strongly in the principle of considering the social impact of financial decisions-- and I want as many people as possible to a) be exposed to that viewpoint and b) start doing the same. So for me, a lot of why I do it is to help make it more visible. I do it so there'll be news stories talking about how much it's grown. I do it so I can tell you guys about it on my blog! That sounds kind of silly, but I think it's important.
• "I do it because of how it makes me feel."
  
• I think there are two sides to this. One is to do it because it makes you feel good about yourself. I'm not saying that's completely a bad thing (it helps provide the psychological support to keep you going, for one), but I do think it can be problematic when it makes folks complacent. You have to be realistic about what your choices actually accomplish, and not let other opportunities slip past you because you're wrapped up in the smug feeling of being a do-gooder.
• But on the other hand, I think it's really valid to want your financial decisions to be consistent with your values. It's a decision about living your life more fully in tune with what you believe, and feeling better, more comfortable, more authentic as a result. This is important to me-- something seems to click into place when I'm making a values-based choice, so that I feel more at peace with myself. The challenge here, of course, is that it is virtually impossible to totally avoid financial choices that have problematic implications, so when you become more conscious of the context of your decisions, you also end up feeling like more of a hypocrite, complicit in things you oppose. I think the key here is just to be realistic about what options you actually have, and instead of kicking yourself when good choices are difficult or unavailable, get involved in increasing the options for everyone.
  

What do you think? Do you think of yourself as making socially conscious financial decisions? If so, do these describe your reasons, or are there others I've missed? (I'd love to hear you talk about your reasons and motivations in your own words!) If you don't, why not? Is it a practical choice-- "It doesn't do enough/any good; I can find better ways to support my values"-- or are you opposed in principle?

Related posts:
Guide to Socially Responsible Investing: Part 1 (what is SRI?) and Part 2 (some SRI options)
Community Development Banking
Socially Conscious Finances: Spotlight on GLBT
All about fair trade and where to find it
Locally-owned businesses vs. corporate chains

Socially Conscious Finances: Spotlight on GLBT

When you're trying to incorporate your values into your financial decisions, one thing you're always looking for is good information. That's why I'm so glad to find the Corporate Equality Index from Human Rights Campaign (via mapgirl and ~Dawn). It's a comprehensive evaluation of hundreds of companies based on a range of important policies and practices. In other words, it's incredibly useful research, all in one place, ready to be drawn upon by all of us who'd like to make our financial choices-- investing as well as purchasing goods and services-- with GLBT issues in mind.

The whole long document is at this PDF, but here are some of the highlights from the 2006 report:

• The scale, which runs from 0 to 100, includes a variety of issues, from anti-discrimination policies to diversity training to domestic partner benefits to respectful advertising.
• This year, 138 of the 446 companies scored a perfect 100. Obviously I can't list them all here-- please check out the PDF!-- but here are a few selected more or less at random:
• Apple Computer, Bank of America, BP America, Capitol One, Chevron, Dell, General Mills, General Motors, Starwood Hotels and Resorts Worldwide, US Airways, Walgreens, Xerox.
• This year, 3 companies scored zero. They are Exxon-Mobil, the Meijer grocery chain, and Perot Systems (Ross Perot's tech consulting firm). In fact, although Mobil used to have domestic partner benefits and included sexual orientation in its non-discrimination policy, these practices were reversed when Exxon bought Mobil in 1999.
  
• Other low-scorers I noticed: Archer Daniels Midland, Bayer, H.J. Heinz, Nestle Purina PetCare, Newell Rubbermaid, and Nissan North America, all at 15.

For me, personally, my investing is entirely in socially-responsible mutual funds, which incorporate this kind of research already. But I'm glad to have this knowledge as a consumer; I certainly won't look at an Exxon-Mobil gas station the same way again, for starters.

Reading this report has inspired me to compile and share the good information that's out there on other issues that I care about, so expect this to be a continuing series. If you have any good sources of information on companies' social responsibility, please share!

[Edited 11/23/06 to add: Also check out The Advocate's list of top companies for GLBT workers, and be aware that these lists may miss things-- thanks to Dana at Mombian.]

Socially Responsible Investing, Part 2: Some SRI Options

So, you read Part 1 and are wondering how you can get involved in Socially Responsible Investing (SRI)? It really depends on your values and what you want to accomplish.

Mutual Funds

[Note: This link is so incredibly useful; it has all kinds of information about dozens of SRI mutual funds in a great, easy format. If you don't want to bother with my commentary, just go straight here!]

Are you only concerned about social screening, and not about shareholder activism? You might like the Vanguard FTSE Social Index Fund (VFTSX), with a cheap 0.25% expense ratio, which follows an index with a fairly typical set of progressive screens (environment, labor practices, human rights, etc).

However, for me personally, I feel that shareholder activism is absolutely vital, and so I wouldn't be comfortable with VFTSX. Instead, I looked for funds that had similar broad progressive screening policies, but were located at mutual fund companies dedicated to serious shareholder activism. The most active ones I found were Calvert and Domini, with the runners up including (but not limited to) Citizens, Parnassus, and Pax World Funds. If you are interested, I recommend looking into all of these. All my IRA money is at Domini so far, and I love it-- it has less variety than many of the other fund families (just an index fund, a European fund, and a bond fund plus the money market account), but is no-load and keeps expenses low while staying seriously committed to shareholder activism. Claire over at Tired but Happy recently picked some Parnassus funds, which has prompted me to think about some of them for the future as well.

There are also some funds which focus especially or exclusively on single issues-- like the Winslow Green Growth Fund (WGGFX), a highly-rated small-cap fund focusing on the environment (other environmental funds include Green Century's balanced (GCBLX) and equity (GCEQX) funds, and Portfolio 21, which is a global fund); Women's Equity Fund (FEMMX), which supports the advancement of women in the workplace and other women's issues; and the Parnassus Workplace Fund (PARWX), which focuses on outstanding workplaces. If these issues are particularly important to you, you might be interested in these more targeted funds.

Religious Mutual Funds

The Timothy Plan funds screen against direct or indirect involvement in alcohol, tobacco, and gambling, but also abortion, pornography, "anti-family entertainment", or "alternative lifestyles". The LCKM Aquinas funds, designed to promote "Catholic family values," look at a broader spectrum of issues, while keeping a distinct religious perspective: "abortion, contraceptives, weapons of mass destruction, gender and race discrimination, human rights, economic priorities, environmental responsibility and fair employment practices," and the MMA Praxis funds, which are affiliated with the Mennonites, take a similar approach. (They are also the only religious SRI fund to have 1% of assets in community investing.) The Catholic Equity Fund (CTHQX) actually doesn't really do social screening at all and just focuses on shareholder advocacy. And the Muslim Amana funds not only avoid alcohol, gambling, and pornography, but because interest is against Muslim principles, they also do not invest in banks or hold bonds.

Non-Mutual Fund Options

The obvious non-mutual fund options are community development banks and credit unions. At this link, you can search for ones in your area. ShoreBank is one which has many locations in the Midwest and Pacific Northwest, and includes an innovative eco-bank. I actually invest in ShoreBank via a money market account at Domini which I cannot say enough good things about (see my earlier post from back in March).

But there are many other options. For example, there are dozens of loan funds out there, which usually let you set your own interest rate (from 0% to somewhere below market rate) with the idea that the amount you are giving up in interest is like a charitable donation-- a great place to start is the Calvert Foundation's set of a half-dozen or so different types of Community Investment Notes (and they even have this funky money market/Community Investment Note hybrid). I also came across a terrific-looking 3-year, 4.20% APR CD that supports Equal Exchange's work in promoting fair trade and supporting farmer cooperatives.

In Conclusion

I know I've mentioned dozens of options and your eyes are probably glazed over, but in reality
I've just scratched the surface of the choices that are out there, too many for me to possibly list or summarize here. I would love to assist any and all of you who are interested in looking into your SRI options by helping you do some research-- I really believe in this stuff and want to see more dollars going into it, and since I only have a limited supply of aforementioned dollars myself, I'd consider any time helping others as time well spent!

Here are a few more links for you (as if the ones above aren't enough!):

• The Social Investment Forum : tons of resources on SRI
• SIF's Mutual Funds Guide: I can't recommend this link enough. Easy to read information on dozens of SRI funds that include financial performance, screening policies, proxy voting, community investment, and more
  
• SocialFunds.com : great Social Investment News headlines, among other things
• The Community Investing Center: community investment-focused resources and information
• Business Ethics Magazine: frequently covers SRI topics, including analysis of the best-performing options, so browse through their back issues online

I hope this has been helpful, and please don't hesitate to ask if you have any questions, to add in any of your suggestions or experiences, or ask some tough questions if you disagree with this approach. Good luck!

• Part 3: The diverse motivations for socially conscious financial decisions
• Part 4: Socially Responsible Investing/Socially Conscious Finances: Tough Questions

Socially Responsible Investing: Part 1

I'm surprised I've gone this long without writing about Socially Responsible Investing (SRI)! This is a two-parter: I'll start with the basics of what SRI is, and Part 2 will describe some specific SRI options you might be interested in looking into, as well as including links to other resources to learn more about SRI (and to relevant pfblog posts!)

What is SRI?

Socially responsible investing is the process of incorporating your personal values and concern for society into your investing and financial decisions. This is commonly done through mutual funds, but that's not the only form of SRI.

There are three different SRI strategies, which often are combined. The first and most well-known is social screening, but the other two, which in my opinion are even more important, are shareholder activism and community investing.

Social Screening: Social screening can be "positive" or "negative." Positive screens seek out especially good companies on a certain issue, while negative screens avoid certain companies. Companies can be screened on their policies (environmental impact, labor, diversity and discrimination, etc) and/or on the products or services they provide (alcohol, tobacco, gambling, nuclear energy, weapons manufacturing, etc). Individuals can do their own social screening when they pick their portfolios, but it's most often done in the context of SRI mutual funds, which dedicate significant resources into doing detailed research into the social impact of the companies they invest in or are considering investing in.

Shareholder activism: SRI mutual funds holding stock in certain companies will often initiate a dialogue with corporate management if they have concerns about certain practices or policies (or the lack thereof). Often this dialogue is enough to lead to change. If the company is unwilling to make changes, the mutual funds (or other investors) may file a shareholder resolution to put the question out to all stockholders. There are hundreds of these resolutions filed every year, and the various SRI mutual funds will consider all of them and often vote against managment on most. (Traditional mutual funds usually vote with management.) Individuals who own stock can vote on these resolutions too-- if you own even one share, you should get a proxy ballot every year. Since the default vote is "with management," the resolutions rarely get a majority (and are non-binding anyway). But any time they get a significant percentage, it sends a strong message and really helps the dialogue process.

Community Investing: I talked about this back in March when I discussed my money market account, so I won't go into too much detail here. But the central idea is that community investing means using your banking and investing dollars in ways that prioritize helping financially underserved communities get access to credit and capital. Lending is targeted to individuals and organizations that help low-income communities. Most commonly this is done through banks and credit unions (with savings accounts, CDs, money market accounts, etc), but there are also community development loan funds and venture capital funds out there. There is a nationwide 1% or More in Community campaign which encourages individuals, institutions, and mutual funds to put at least 1% of assets into community investing. As for me, I'm at about 50%!

How common is SRI?

SRI is growing. Between 1995 and 2005, the amount under SRI management rose from $639 billion to $2.29 trillion. (Over the same period, the total universe of managed assets went from $7 trillion to $24.4 trillion.) So as you can see, SRI makes up about 10% of professionally managed money. And $19.6 billion is currently in community investments, up from $5.4 billion in 2000.

Does SRI mean giving up financial performance?

The short answer is no. The medium-length answer is that it depends on the particular fund, and the time period you look at, but SRI funds sometimes overperform and sometimes underperform the market. (Community investment options vary-- some are at or close to market rate, while others let you voluntarily choose below-market interest rates in order to have a higher social impact.) And the long answer-- try reading these seventeen studies!

What are some specific SRI options?

Please check out part 2! One thing I want to make sure to point out is that while SRI is typically associated with a "progressive" set of values and priorities, there is actually a great diversity of SRI options to fit people with a variety of different values (including a strong religious SRI sector). I'll be describing some of them next time.

Also:

• Part 3: The diverse motivations for socially conscious financial decisions
• Part 4: Socially Responsible Investing/Socially Conscious Finances: Tough Questions

Community Development Banking

One of the money/values choices I'm happiest with is my money market account, which is deposited in a community development bank.

Community development banks are banks whose mission is to support and provide resources for low-income communities which are traditionally financially underserved. Unlike ordinary banks with one (financial) bottom-line, community development banks also consider the social impact of the loans they make, and measure their success based on a double bottom-line (supporting people and communities, and operating profitably) or a triple bottom-line (which also includes environmental impact).

Community development financial institutions (CDFIs) make lots of loans to help people and organizations in low-income communities buy homes, start small businesses, develop non-profits, and build and rehab affordable housing. They may also make small loans to individuals abroad (micro-credit).

They often make loans to people who have trouble finding loans anywhere else-- people with bad credit histories or no credit history at all, people without collateral or co-signers-- so they take on a somewhat greater risk than traditional banks. But the rate of default on their loans is actually pretty comparable to traditional banks. One reason why comes from this article at MSN Money:

[Says Mike Pinsky, president and CEO of The National Community Capital Association:] "We specialize in projects where the perception of risk is higher than the actual risk."

For example, community-development institutions often provide mortgages to low-income borrowers who were turned down by other lenders because of their bad credit. The institutions have discovered that they can find good credit risks when they remove unpaid medical bills from the credit-scoring equation.

"A lot of the people in low-wealth areas are very hard-working and they pay their bills," Pinsky said. But they're often uninsured and unable to cover soaring medical bills from an accident or illness.

"If you remove the unpaid health-care bills (from their credit scores), they often qualify for prime credit," he said.

Domini Social Investments, the same investment firm where I have my Roth IRA, has a great money market account. All of the assets in the money market account go straight to ShoreBank, one of the oldest and most well-known community development banks, based right here in Chicago. And right now it has a 4.07% APY, which is just fine by me. I know it's not the absolute highest interest rate I could find, but it's a great balance for me personally. I'm happy knowing my money is having a positive social impact, and my savings are at least keeping a little ahead of inflation.

I could go on and on about this-- and I bet I will, at some point in the future-- but for now, you can learn more about community development financial institutions (banks and credit unions, community development loan funds, even venture capital) at the Community Investing Center, or read some of the great real life success stories here. And if the environment is a high priority for you, check out this really neat environmental bank.