Whichever label you prefer, you can't ignore the success of values-based financial planning. According to the Social Investment Forum, one in every eight dollars — approximately $2 trillion — is invested in a socially responsible portfolio. That's an eighty-percent increase from 1997. What's more, a new Morningstar, Inc. analysis shows that socially responsible mutual funds are twice as likely as all mutual funds to earn the respected research and analysis firm's top five-star rating.
A New Voice for Your Money
Turn on any financial talk show and you will be deluged with advice about how to make more money. You'll learn which kind of IRA is best for you, and hear arguments rage about the pros and cons of no-load mutual funds. This is useful information, but it doesn't go far enough. Given the central, powerful role of money and business—both in our society and our personal lives—it is astonishing that so little attention is given to the social, ethical and spiritual dimensions of money. Even the most caring commentators seem oblivious to the enormous impact our financial decisions have on communities, the earth, and our own peace of mind.
So how can people include their spiritual, social, environmental and ethical values when making important financial decisions? Why do so many conscientious, good-hearted people make investments that conflict with their own deeply held beliefs? There are, of course, no easy answers. We have found that the status quo—where money and values are separated by an impenetrable wall—is rooted in an outdated mechanical worldview that sees everything as parts of a giant machine. When we shift toward a natural worldview of interrelated living systems, a new sort of investing emerges. We call this Natural Investing.
Natural Investors are shunning conventional wisdom
that says we must abandon ethics when making financial decisions. People of all income levels, from across the entire political spectrum, are using the tools of Natural Investing to find profitable investments. And don't think Wall Street hasn't noticed this powerful force; nearly every mainstream investment option now has a values-based equivalent. You don't need a lot of money—several screened mutual funds and community banking options welcome small investors who can start with as little as $50. All that's really needed is the willingness to identify and consider your personal values when making decisions about your money.
Answering the Skeptics
It takes courage to examine honestly the ethical component of one's investments and become aware of any inconsistencies. So it is understandable that many people try to avoid the issue by leaning on one or both of the following myths. The fact is, these common claims bear no relation to the reality of Natural Investing.
Limiting one's investment choices by using social, environmental, or ethical criteria results in lower financial returns.
It is true that Natural Investors voluntarily limit their choices, but this has not led to any systematic underperformance in the universe of stocks typically chosen by Natural Investors. In fact, solid statistical evidence shows that investments chosen with social, environmental, or ethical criteria perform as well as or better than those chosen with financial criteria alone. In 1990, the Domini 400 Social Index was launched; it includes socially screened companies in a similar range of sizes and industries as the unscreened Standard and Poor's 500. From its inception in 1990 through December 1998, the Domini 400 has outpaced the S&P 500 with a total return of 442 percent compared with the S&P's 366 percent. This is a truly remarkable feat, but it is only one of many studies that show a positive correlation between corporate responsibility and corporate profitability.
Natural Investing is only for tree-hugging radicals and aging hippies.
Natural Investing in the United States traces its origins to Quakers and other Christians who could not live with the inconsistencies between their beliefs and their investments. Today a diverse range of strategies is available to support investors with wide-ranging values, from conservative Christians to farm-belt traditionalists to environmental visionaries. Most screened mutual funds aim at a broad cross-section of common interests. Natural Investors are not anti-business, nor are they dabbling in collections of fringe companies. For example, the Domini 400 includes many household names, such as Home Depot, Xerox, Johnson & Johnson, Coca Cola, and BankAmerica. Although none of these companies is free of controversy, each has particular strengths that led to its inclusion in the index.
The Natural Wheel of Investing
Natural Investing enables you to bring your particular social, environmental, or ethical concerns to the money table. Although most Natural Investors grapple with mainstream topics like corporate responsibility and workplace conditions, your investments can be customized to focus on a nearly unlimited array of issues. A full range of financial objectives can be met with Natural Investing, using everything from conservative, government-guaranteed bank programs through socially screened mutual funds to high-risk venture capital.
For those of you who are new to this field, we've got some great news to share: you don't have to reinvent the wheel. The tools we suggest will help you set a direction for your financial life that includes both monetary goals and social goals, then to steer a course using strategies already pioneered by values-motivated investors. The "Four Spokes of Natural Investing Wheel" will be our road map. This concept outlines the major strategies that Natural Investors use to bring their values into the financial world.
1. Avoidance Screening
This is the familiar method of choosing not to invest in industries by which you do not wish to profit; tobacco, weapons and environmental polluters are some of the many commonly-used screens.
2. Affirmative Screening
Also called "prospecting," this strategy encourages investors to actively seek out investments in activities that they do want to support, thus bringing their vision of a positive future into the world. This can focus on leading-edge companies in emerging fields like alternative energy and natural foods; or, it may include investments in large companies or even government agencies that are addressing the concerns of investors. Many prospectors buy stock in companies that demonstrate a high level of commitment to their workers, their communities, or the environment.
3. Community Investing
This rapidly emerging branch of Natural Investing is especially useful for getting your money into the hands of grass-roots programs and economically marginalized people. Done on either a local or global level, Community Investing initiatives include affordable housing, small business lending, targeted investment in both urban and rural areas of the country, and microenterprise development throughout the world. It is an excellent way to put your savings to work and provide a "hand up" to those who need access to capital.
4. Shareholder Activism
This potent strategy provides a means for changing companies from the inside. Shareholder activists have a wide range of tools available to them, including dialogue with companies on issues of concern and sponsorship of shareholder resolutions when companies refuse to talk or when the dialogue breaks down. These methods achieved stunning results in the campaign to end apartheid in South Africa and are now being applied to a wide range of foreign and domestic concerns such as sweatshops and excessive executive pay.
Part of January/February 2000 special advertising section.
From Investing with Your Values: Making Money and Making a Difference by Hal Brill, Jack A. Brill, and Cliff Feigenbaum. Copyrighted 1999, published by Bloomberg Press.
To order see www.NaturalInvesting.com, or send a check for $26.95 (includes shipping) to Natural Investment Services, Box 747, Paonia, Colorado, 81428. For credit card orders call (970)-527-6550.