Mmm...not like that. Source: 999konycountry.com
Thank you for clicking on this link! In doing so, you have opened the portal to a brand new topic that Global Citizen is proud to introduce: Socially Responsible Investing and how YOU, dear reader, can make some serious green (pun absolutely intended) doing great things for humanity (and if you’re money is some strange other color-i.e. you’re not from the US-keep reading anyway).
In a world with so many systemic issues, and such an overwhelming feeling of helplessness in the face of it all, socially responsible investing is one of the best ways to take concrete action to make the world a better place.
Before we get started, here’s a quick definition: Socially Responsible Investing (SRI) is an investment strategy which seeks to consider both financial return and social good. And it’s awesome.
Allow me to put my money where my mouth is. And by money I mean the few bucks I manage to wrestle away every month from the financial black hole that is New York City-but I digress... Am I investing in “socially responsible” operations just to give myself a warm, fuzzy feeling inside, while looking down on my peers from a self-righteous cloud of smug?
As fun as that sounds, no. I do it for the cash. Financial return, I should say. A lot of industry professionals think social investing is nice...if you don’t care about return. They say, why not just invest like a normal person, take your profits, then donate some of them to charity?
Ugh. Just typing that sounds inefficient. Especially when there is proof that socially responsible investments create equally good and sometimes better returns than non-SRI assets. I’ll explore some very convincing examples of this below.
What the heck does being socially responsible have to do with making money?
The draw to Socially Responsible Investing is simple: businesses that benefit society in addition to building shareholder wealth will outperform businesses that do not improve society in the long run. And, as with any value creation, this should be reflected in the stock price (meaning it should be higher).
What goes around comes around, and not even giant corporations can escape this universal law. In the long run, "less-responsible" companies risk environmental or ethical regulations, negative media attention, and expensive lawsuits, which send investors running for the hills and the stock price plummeting. Not to mention the fact that such companies tend to be behind the innovation curve relative to their more proactive and responsible peers.
Indeed, Dr. Caroline Flammer, the 2013 winner of the prestigious Moskowitz award (UC Berkeley) was able to prove that, “implementing [Corporate Social Responsibility] leads to higher shareholder value, along with improved operating performance, happier employees, and strengthened stakeholder interest.”
Ready for some examples?
You know that annual publication that Fortune puts out on the Best Companies to Work For? Well, if you thought that list was just something to fantasize over while sitting in a gray cubicle drinking cheap coffee, think again. The companies on this list have been shown to consistently beat the market, which indicates that treating employees well helps companies perform better.
Each year at Davos (yes, THAT Davos with all the fancy parties, rich people and social announcements), a list of the world’s 100 most sustainable companies is released. Hundreds of companies listed on the Morgan Stanley Capital International (MSCI) Index are scored and ranked on their environmental, social, and governance (ESG) performance. Historically, stocks in this Global 100 index have outperformed the overall MSCI, which explains why there is now so much fanfare around the announcement!
A 1995 study at Vanderbilt University compared two stock portfolios, one consisting of "low pollution'' corporations while the other included "high pollution" corporations in the same industries. The low-pollution portfolio of stocks performed better than the high-pollution group in 80% of cases. The likely explanation? Not only do low-pollution companies reduce costs through more efficient energy utilization, but they also benefit by avoiding environmental penalties that high-pollution companies are subject to.
The FTSE KLD 400, an index of socially responsible stocks created in 1990, generated annual returns of 9.51% (through 2009), compared with the 8.66% return achieved by the S&P 500 over the same period.
Convinced yet?
Before I leave you, please let me make something clear: Not all companies or industries that fit socially responsible investment criteria will succeed!! This is not a call to abandon all business judgement with the rationalization that a company should do well just because it does good (socially speaking). If it’s financially and/or operationally incompetent and uncompetitive, the thing is going to fall flat on its face no matter how benevolent it is. You still need to do all of your homework before jumping into a financial investment.
Now that you know just how profitable Socially Responsible Investing can be, stick around to learn what kind of research is important when shaping your decisions (and where to find it). See you soon!
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Alison Shea