Are you a socially responsible investor?
It's difficult not to get caught up in the excitement of investing. We've just finished the third consecutive year of 20 percent-plus stock market returns, and the longest bull market in history has yet to fade away. During this run many baby boomers have seen their investments grow substantially. It's not unusual to find mainstream baby boomers with more than $200,000 sitting in company sponsored 401(k) plans or other investment accounts which they are responsible for managing.
Collectively, EHS professionals probably have a lot of hard-earned money working in the financial markets. How should it be invested? I'm talking about more than risk and return. An attractive rate of return is always important, but what about ensuring that our money is not financing activities that may harm other people or the environment. After all, shouldn't we invest in accordance with the values and beliefs we strive to practice every day?
The concept of socially responsible investing is now more than just a passing fancy among a few quirky investors. It's a very popular and growing investment strategy. In the U.S., $1.185 trillion in assets is now being managed in socially and environmentally responsible portfolios, up from $639 billion in 1995, according to the Social Investment Forum (see 1997 Report on Responsible Investing Trends in the United States online at www.socialinvest.org). This figure is nine percent of the estimated $13.7 trillion in investment assets under professional management in the U.S.
Types of investingPortfolio screening, shareholder activism, and community investing are three types of socially responsible investing.
Portfolio screening involves both negative and positive screening. A negative screen may be used to avoid stocks of tobacco, alcohol, gambling or weapons; or stocks of companies that have a history as a polluter or some other bad practice. A positive screen may be used to seek out stocks in companies who have sound safety, health and environmental practices or that demonstrate good employee and community relationships.
Shareholder activism involves buying stock in questionable companies in order to change corporate policies.
Community investing would be, for example, to open a certificate of deposit in a local bank that in turn issues loans to small businesses in the community or helps build affordable housing.
Handling socially responsible investing by yourself is not easy but it can be done. Here's an example. Let's say that you feel the NIOSH Hazard Alert on using powdered latex gloves offers an investment opportunity. Knowing that people will be scrambling to purchase allergy-free latex gloves, you look for a company that offers this product and whose stock price may benefit from the increased sales. The July, 1997, issue of Kiplinger's investment newsletter highlighted just such a company and suggested it as a "best buy." In fact, if you acted on Kiplinger's advice by the end of 1997 you would have an 83 percent gain. Not bad.
But how would you know if your investment was socially responsible?
The company was making a product to help prevent injury and illness. This is good. But a quick search on the Internet showed that the company stopped making exam gloves at its Malaysian plant and moved production to its facility in Thailand, where gloves could be made 40 percent cheaper. This should send up red flags regarding possible oppressed workers and maybe even child labor. Then again, the facility in Thailand may be modern; very productive; and employ sound safety, health, and environmental practices. It may take much more than a couple minutes to find the true facts, but this is what socially responsible investing is all about. And you can see that it has global ramifications.
Investing helpFortunately you don't have to make these decisions all by yourself. Since 1995, the number of mutual funds that employ social and/or environmental criteria has risen from 55 to 144--a gain of 162 percent. We can certainly expect more socially responsible mutual funds in the future. You may simply choose to invest in a fund that meets your criteria.
The Internet can lead you to a lot of information. If you're going to search for socially responsible investing on the Internet I suggest that you use the search site www.dogpile.com (I know it sounds funny, but it works). Use the search words "socially responsible investing" and hit the "go fetch" button.
You should also refer to the article on "Top Socially Responsible Funds" in the January, 1998, issue of Your Money.
You may want to look into the Dreyfus Third Century fund. I don't want to endorse any specific investment strategy, but this fund is in its 25th year and its latest annualized return (3-year) is 29 percent. What's important about the Dreyfus Third Century fund is that it uses positive portfolio screening to examine companies' treatment of the environment, occupational health and safety, consumer protection, product safety, hiring practices, and contributions to the quality of life in America.
Added benefitsHow else may knowledge of socially responsible investing help the EHS professional? There's no shortage of criticism that us folks in the EHS field are not very business savvy. Learning more about investing, and particularly socially responsible investing, will help us address our perceived lack of understanding about key business and financial issues.
It's also nice to think that the EHS programs we develop and manage may make the difference in an investor buying into our company, as opposed to one of our competitors. That would make your CEO happy.
In short, if we support socially responsible investing and this strategy grows, the EHS profession should also prosper. Sounds like a nice symbiotic relationship to me.
One final thought: I've discovered through conversations that most of my EHS colleagues are quite knowledgeable and active in investing. Most of the EHS pros I talk with fit the profile in the book, "The Millionaire Next Door." They tend to live below their means and invest the difference. The book also points out that the person most likely to become a millionaire is the independent business owner. It's interesting to note that the 14th Annual White Paper pointed out that 16 percent of readers of this magazine plan to start their own consulting business in 1998.
If the trend holds, I expect to see a lot of quiet millionaires in the EHS field in the coming years. Keep up the good work.