Whether the market is going up or down, the fate of your investments can depend on the social or environmental performance of the companies you invest in. A simple example is British Petroleum. Their stock dropped about 38% from April 20 to July 15, 2010, after an explosion caused the deaths of oil rig workers and the worst oil spill in US history. Subsequent investigations showed that the explosion was the result of cost-savings decisions which were a symptom of poor safety management. Until the spill, many people may not have realized that their money was invested in BP if they owned shares through a mutual fund invested in many different companies. Right now your money might be invested in companies which may lose value due to environmental, social, or corporate governance (ESG) risks which are mismanaged. That's your savings, your pension, your responsibility. One form of social action is considering social or environmental values in your investment decisions. As with voting in an election, there is strength in numbers, and societal issues are becoming important to more and more investors.
Socially responsible investing means different things to different people, depending on what is important. There are mutual funds that specialize in clean-tech or that include screens for a variety of other environmental or social factors such as weapon production or nuclear power (examples can be found at www.yourethicalmoney.org/investments). Among Orthodox Jews, “Kosher Funds” allow investees the security of knowing that their money is not invested in companies that operate on Shabbat or that produce and market non-kosher products.
Greeneye, where I work, is the first company that conducts independent research of socially responsible investment in Israel. The 50 largest public Israeli companies are put under the looking glass in order to complete an extensive profile of how socially responsible they are. These companies have been chosen by clients, including the British FTSE index provider as well as large financial institutions. Once marked for evaluation, a research team under my supervision meticulously examines the public reports, websites, certifications, awards, and data of the companies and their subsidiaries as provided by outside sources such as social NGOs and news outlets. The final profile covers issues from waste-water emissions to board responsibility for community donations. This range of information provides investors with the information they need to make a multitude of choices.
Israel is a society born of values. The country was born and built on devotion to the long term, looking to turn a wasteland into a place for a nation. Every day the political agenda moves further towards issues of equality, social benefit, and environmental conservation. As the former CEO of Psagot, the largest Israeli investment firm, Roy Vermus states, “In addition to the affect that these [ESG] criteria have on long term performance, we assess that this examination will result in an increased awareness amongst companies and the general public of corporate governance, environmental preservation and social responsibility issues.”
Socially responsible investing is not only an issue of social benefit, and though ethical issues are an important aspect of investment, it really is good business. Comparisons between performance of socially responsible indices and more conventional indices show that responsible investment is financially worthwhile. The Dow Jones Sustainability Indices (DJSI) outperformed the S&P by 880% over the period 2006-2009. That means that the money you would make if you invested in the DJSI would be almost nine times more than you would make invested in the S&P 500. Of course, some sustainability indices do more poorly, just as all indices have a varying range of performance.
It might be surprising that there are ways to use your money responsibly beyond choosing to “buy green” or look for the fair trade label on a product. Next time you talk to your bank or investment advisor, ask for a socially responsible investment product. If you can choose your pension plan, look for one that considers social issues such as labor rights. Find an alternative energy fund and do your part in mitigating climate change. You can invest in sustainable products in many ways, not only promising yourself a better financial future but also a better society for everyone.
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