Ethical Investment: Make Money, Do Good
- Written by Candice Elliott
We want to make money via our investments. But do you care where that money is invested? Ethical investment lets you feel good about where your money goes.
It’s important to get them gains but it’s also important to vote with your investment dollars. The US company, Hospira, stopped making sodium thiopental in 2011. This is one of a cocktail of drugs used in lethal injections.
Because of this, there is now a shortage of the drug. What if a new company decided to start manufacturing it? It could potentially be a big money maker for investors. Would you invest?
Investopedia defines ethical investing this way, “Ethical investing gives individuals the power to allocate capital toward companies that are in line with their personal views, whether they are based on environmental, religious or political precepts.”
We all have something we care deeply about, the environment, animals, apartheid. Many of us devote our time, efforts, and money to supporting the causes we feel strongly about. But most of us have probably never considered what our money is supporting when we invest it.
For those of us not interested or savvy enough to buy single stocks, we probably just invest through a fund that uses our money to buy stocks in many different companies. If you feel strongly about environmental issues you probably aren’t buying Monsanto shares. But is your ETF?
Motif is an investing platform that offers “motifs,” which are groups of up to thirty stocks or ETF’s to choose from. Among the motifs are sets of value based investments. They include things like Swell-End Poverty which invests in charities funding poverty relief, Gay Friendly which includes companies that are welcoming of gay and lesbian customers, and Climate Change which invests in companies working to combat the warming of the planet.
Vanguard offers the Social Index Fund Investor Shares which is “screened for social, human rights and environmental criteria.” So if you you’re a Vanguard fan who doesn’t want your money propping up third world dictatorships and such, this is a good place for you.
Ethical investing takes many forms. If you want to make sure your investments aren’t supporting companies who operate in a way you disagree with, you have some options.
Impact investing is defined as not only avoiding harm with your investment but seeking out investments that make a positive impact. Impact investing can be done in both emerging and developed markets.
People investing this way may use their investments to increase access to things like education, affordable housing and health care to under served communities.
Bridges Ventures is a UK/US based organization that uses impact investing in three categories, sustainable growth, real estate, and social sector.
Micro-fiance is a source of financial services for entrepreneurs and small businesses that lack access to traditional banking services. It’s a way to help lift people out of poverty by investing in their enterprises.
One of the biggest aspects of micro-finance is micro-loans. You and other investors loan what are relatively small amounts of money to help someone start a small business. Women in underdeveloped countries are big beneficiaries of these kinds of loans.
Please note that you generally do not make interest on these loans. You loan this money as a charitable gesture to help someone start a business. If the person makes the loan repayments, you get the money you lent back. But you don’t make any additional money. Of course, if the borrower defaults, you lose the money you loaned.
I included these types of loans because not all investments are made in order to make the investor money. Some investments are made in people and communities and while there are gains, they are not monetary.
It doesn’t take a lot of money to start a small business in an underdeveloped country, some loans are as small as a few hundred dollars. But the impact can help lift whole families out of the type of poverty we in the West can scarcely imagine.
Micro-finance organizations also offer savings accounts and insurance to people who don’t have access to those services through large institutions.
Kiva is one such organization. They operate in 86 countries, have loaned over $700 million dollars to two million borrowers. The rate at which the loans are paid back is over 98% and the average loan is just $416.
A divestment boycott is, “… the use of a concerted economic boycott to pressure a government, industry, or company towards a change in policy, or in the case of governments, even regime change.”
Economic divestment is credited with helping to end apartheid in South Africa. More recently divestment movements have sprung up most notably to divest from fossil fuels and Israel.
The Guardian has recently launched the Keep It In The Ground Campaign which is lobbying the Bill and Melinda Gates Foundation and Wellcome Trust, the world’s two biggest charitable funds, to divest from companies that invest in fossil fuels.
BDS is an organization founded in 2005 to exert economic and political pressure on Israel to end the occupation of Palestinian lands.
Why Not Just Give Your Money Away?
Well, left leaning as I may be, I still like money. Really, really like money. Not for the things that it can buy me but for the freedom it affords me. And because I don’t have inherited wealth, I have to work for my money and invest it so it works for me.
I do give money away. To animal welfare charities, to Planned Parenthood, to Wikileaks. And when I shop I try to be mindful of who I give my money to, so Costco over Sam’s Club. But it’s a pain in the ass to consult Human Rights Watch Hot 100 list every time I need spinach.
Keep in mind, what Vanguard may consider a socially responsible company may not meet your definition. Just as you shouldn’t blindly donate to a charity, you shouldn’t blindly invest in an ETF that claims to be socially responsible.
So you will need to do some research. Although just picking any socially responsible ETF that you find via google will probably be better than just investing with zero research. You have to start somewhere.
So I do the best I can. And while I don’t have 100% of my investments in ethical enterprises, I do it where I can afford to do it. If we all followed the same model, we could use our dollars to make a difference.
Featured Image Photo Credit: “Joker!” by Pat Loika on Flickr