(Prosperity- Laura E Kirkpatrick & Tara Gravel) You’ve got power, girl—the power of the dollar! Women, according to Ketchum Public Relations, control over $3 trillion a year in domestic spending. We’ve motivated society to Go Green, and control most of the country’s personal giving to charity. But have you thought of the effect your money has in a mutual fund or IRA?
You might be surprised to hear that it can have as much power invested as it does donated to a good cause. Maybe even more, because it can help you while supporting companies that reflect your ethics and values. Pick the right fund, and it’s like casting a vote for better business practices.
According to MorningStar, an independent investment research firm, the number of socially responsible mutual funds increased by 134 percent between 1996 and 2006. Over the last decade (through the middle of 2007) assets in such Socially Responsible Investments (SRIs) increased sevenfold, topping $47.4 billion. Large investment firms such as UBS,and Vanguard, have all created socially responsible funds. In 2006, TIAA CREF announced a firm-wide socially responsible investment policy and launched a socially responsible public mutual fund
“As investors, we saw an increase in the opportunity to have a double bottom line,” says Amy Muska O’Brien, Director of Social and Community Investing for TIAA CREF. “With socially responsible investing we aren’t giving up anything in terms of growth and fund management, and we’re making a strong positive impact on social issues.”
The difference between a regular fund and an SRI fund is the screening applied to it. These funds usually have no less than five screens by which companies are judged. The first two screens are negative. First traditional “sin” stocks, like companies that produce alcohol, firearms or tobacco, are screened out. Companies are then vetted following the guidelines set by the United Nations in 2006 in “The Principles of Responsible Investment,” which are voluntary guidelines for corporations. They include recommendations for corporations to follow regarding guidelines around their companies relationship with the environment, human rights compliances and the awareness of their companies overall role and toll in and on society.
Muska O’Brien says the key to a growing number of SRI funds is screening based on positive impact, such as strong records in shareholder activism – where board members, even those who hold only one share actively drive the mission and practice of the company, social responsibility, and/or community investing.
“The screening process isn’t black and white; it is a complex process of evaluating a company’s strengths and weaknesses based on several levels of criteria and performance,” Muska O’Brien says, adding, “…I wouldn’t outright eliminate all oil companies. These funds are looking for that double bottom line, and they won’t give up on making you money, while making sure that it is done in an ethical and socially responsible way.”
Amy Domini, chief executive of Domini Social Investments, has McDonald's on her SRI index. (The Domini 400 Social Index Fund now totals $1.2 billion in assets, with an annual performance matching Standard and Poor's 500 Index, according to That Money Show on PBS.) “McDonald's is very much on our watch list and we always struggle with it,'' Ms. Domini has written in defense of this stock, ''But we attempt to draw from the better 50 to 60 percent of the universe available to us.''
This strategy is known as ''best in class''—McDonald's may not be the most socially responsible company over all, but it’s one of the better ones in the fast-food industry—a technique many SRI funds use.
In an interview with That Money Show posted on the PBS website, Domini pointed out that, "McDonalds was very willing to be the first major food company to have sustainable farming techniques … and hold their sources of chicken accountable to more humane farming techniques."
So, if certain practices or industries are objectionable to you, you’ll want to know if the funds you’re considering use the “Best in Class” technique.
