According to the Forum for Sustainable and Responsible Investment, SRI (socially responsible investing) is an “investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact. Often SRI offerings avoid companies that derive profit from such things as fossil fuels, firearms, and tobacco.” This is a good start, but those filters, used by most SRI options don’t meet the 3P (people, planet, profit) criteria. For example, as of April 30, 2018 the top ten holdings in Vanguard’s FTSE Social Index Fund Investor Shares (VFTSX) were as follows:
1. Apple Inc.
2. Microsoft Corp.
3. Alphabet Inc.
4. Facebook Inc.
5. JP Morgan Chase & Co.
6. Johnson & Johnson
7. Bank of America Corp.
8. Intel Corp.
9. Visa Inc.
10. Wells Fargo & Co.
None of these companies follow business practices that I want my money to support. They all create product lines and marketing strategies that strongly encourage consumerism. Most of us on the path to financial independence (FI) are trying to reduce our consumption recognizing how much fulfilling life can be when we are NOT keeping up with the Joneses. I don’t want to invest in companies that persuade others to buy more stuff and be less happy.
The number one company, Apple, makes use of precious natural resources that have been extracted from our planet to create products that often become obsolete within a matter of years. Many people then throw these obsolete products in the regular trash so they end up in landfills despite the electronics recycling offered by many munincipalities, not to menition all that initial packaging that was thrown away first.
Financial institutions like JP Morgan Chase represent another industry I prefer not to support. These businesses continually prove themselves unworthy of our trust and rely on predatory practices to generate profits. In general, I see few examples of companies that answer to shareholders prioritizing a triple bottom line that truly values people, planet, and profit equally.
Certainly, in terms of mainstream investing in the stock market, SRI options present the best opportunity for people to direct their money toward more sustainable outcomes, but these options still leave a lot to be desired. In recent years, there has been more talk about a SRI sub-category known as impact investing that I find more intriguing and promising in terms of allowing investors to obtain a triple bottom line. According to Investopedia.com,
“Impact investing is investing that aims to generate specific beneficial social or environmental effects in addition to financial gain. … while the definition of socially responsible investing encompasses avoidance of harm, impact investing actively seeks to make a positive impact by investing, for example, in non-profits that benefit the community or in clean technology enterprises.”
I first heard of impact investing about ten years ago when I worked at a think tank in Washington, DC. At that time, the discussions I was involved with centered around using social impact bonds as a funding mechanism in the early childhood education sphere. I believe these social impact bonds tended to (and continue to be) issued by larger financial institutions for millions of dollars, which is all well and good, but leaves the individual non-accredited investor out of the game.
Fortunately, in this next phase index investing has evolved into something individual investors can participate in with a smaller scale investment. My investigations into impact investing options to date has been limited. I will be looking into it further in the future to generate discussion on this topic in future blog posts.
So what do you have to say about this???
Is anybody else turned off by the fact that so many mainstream companies that push consumerism and extractive practices are represented in the more common SRI offerings? Have you found SRI options that invest in companies or businesses that are more “socially responsible” than those in the typical SRI offerings? If so, please let us know by posting a comment below.
Personal Disclaimer 1) I admit to using products offered by a few of these companies, but I do it rather begrudgingly (hoping in the coming months, as I hold myself accountable to you readers of my blog, to terminate my relationship with at least one of the financial institutions on this list). Personal Disclaimer 2) About 10% of my retirement investments are currently in TIAA's Social Choice Equity Fund. I hope to learn from my readers and get ideas for how else to invest these funds when I move them to my self-directed IRA.