Sustainability and Your Money

By Michael Kramer

The ways in which people earn, save, spend, and invest money reflect their values. Today, people can use money to live lightly on the Earth, purchase green products, support social and economic justice, and invest in a socially responsible manner, thereby assuring that the legacy left to future generations reflects an ethic of care for people and the Earth.

For the past 40 years, the socially responsible investment (SRI) movement has focalized attention on the use of capital to create a regenerative society. This “triple bottom line” weights social, ecological, and financial criteria equally. In other words, it’s not just up to government or non-profit organizations to solve social and environmental problems; business too shares that responsibility, and can make money in a conscious manner.

The fragility of local communities and bioregions requires special consideration of how money is used. Much attention is focused on the impact of major corporations on what have largely been locally-owned economies. While “buying local” does have the positive effect of circulating money locally before profits leak away, the lower prices found at national retailers are changing customer loyalties. Ethical issues further complicate consumer choices. For example, is it more socially responsible to buy local, conventionally-raised eggs or cage-free, hormone-free, organic eggs from elsewhere that cost more? Is it better to buy lumber from Home Depot, which has a policy against selling old-growth timber, or from a locally-owned company with no such policy?

Shifting to local consumption patterns certainly would reduce the cost of many goods, but only if local businesses heed the social and environmental consequences of these processes. Meanwhile, the cheapest goods may arrive to a given community from sweatshops in China, while the cheapest coffee comes not from Hawaii but from distant countries that exploit labor and poison soils. How can there be true profiteering, then, when the consequences include social injustice and environmental degradation? Most Americans lack the proper information to make informed choices in this realm.

For this reason, SRI actively promotes “better” companies which adhere to a higher standard.  Green America’s National Green Pages, for example, profiles 2000 businesses which demonstrate an ongoing commitment to sustainability as core business practice. These businesses adopt principles, policies, and practices that care for people and the Earth through strategies such as employee ownership, use of recycled and biodegradable materials, eco-packaging, community charitable involvement, progressive employee benefits, and money back guarantees. Examples of green businesses include a tree-free paper company, an organic natural fiber clothing store; and a straw-bale or bamboo construction company.

One of the most popular ways to invest in sustainability is by opening an account at a community development bank or credit union. These financial institutions differ from conventional ones in that their mission has a social agenda such as empowering those who lack traditional access to capital or financing sustainable enterprises. Most investors open money market accounts or certificates of deposits.  Checking and savings accounts also may be provided through community development financial institutions, which will use deposits to strengthen the local community. For example, at the Permaculture Credit Union, car loan rates are based on a car’s miles per gallon, a nice financial incentive to act ecologically. Urban Partnership Bank makes loans to low-income minorities to increase community ownership of homes and assets. Check out www.ussif.org/communityinvesting to find a community development financial institution that suits your own interests.

In addition to conscious purchasing and banking, it is also possible to use retirement and other investment accounts to make a difference in the world. There are over 200 mutual funds which use a variety of social screens to weed out companies based on ethical criteria such as tobacco, alcohol, gambling, nuclear power, polluters, and companies that test on animals. Corporate governance screens address issues such as sweatshops and child labor, operations in repressive regimes, excessive executive pay, workplace discrimination, and Board financial and management policies. This is why companies like Wal-Mart and Dow Chemical are removed, and why Enron was dumped from the SRI funds before the company revealed its fiscal crisis.

On the proactive side, investors can direct their money towards companies which better reflect their values in order to clean up the environment, encourage renewable energy, and support public transportation, energy conservation, recycling, organic and health food, and biodegradable products. Portfolios can be customized to suit individual values preferences, and while progressive companies like Vestas Wind Power and Whole Foods are typical featured holdings, many Fortune 500 companies also meet the screening criteria: Toyota, the industry leader in hybrid technology; BP, the world’s leading solar power manufacturer; and Alcoa, which is using aluminum to build low-weight, fuel-efficient vehicles, all are positively shifting the industrial economy. Some do it to save money, others to generate new markets, and still others because it’s just the right thing to do.

The performance record of social investing equals the conventional approach. The Domini Social Equity Index, for example, which is modeled on the S&P 500 Index, has 250 of the S&P’s holdings that meet the screening criteria along with 150 “better” companies, and it has been outperforming the S&P for 15 straight years in both up and down markets. Many SRI funds receive high performance ratings from Morningstar and Lipper, while a 2004 academic meta-analysis of 52 SRI studies also showed a positive correlation between corporate social performance and financial performance across industries.

Shareholder activism is another key strategy in corporate reform, as investors use dialogue, resolutions and the threat and use of divestment to encourage companies to embrace reforms. In 2004, progress was made on multiple fronts, including a new rule implemented by the Securities and Exchange Commission requiring mutual funds to disclose their proxy votes, and successful resolutions and dialogues on issues such as global warming, sexual orientation nondiscrimination, and addressing AIDS.  Over 1000 resolutions were filed last year, by far the most active season, on climate change issues, reductions of toxic emissions, and computer recycling, while The Gap issued the first-ever vendor compliance report, documenting how well its 3000 factories around the world are complying with its vendor code of ethics and production. The 2005 agenda has included numerous resolutions on issues such as global warming and renewables, disclosure of political contributions and lobbying ties, fair employment, and animal welfare.

Money has no inherent value, and this neutrality shifts its true value to the people who spend it. As such, if people so choose, money can be a powerful force for social and environmental change in this country and throughout the world. The choice is ours.

For additional information about social investing, visit www.ussif.org/communityinvesting and www.socialfunds.com.

Contact Michael to discuss this topic.

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