It is time for the socially responsible investment community to get serious about “investing its principles” in ways that lead to greater justice. If we truly want to move beyond raising ethical issues to transforming the economic structures of our society, we need a more dramatic change in the way we think about investing.
Essentially, I believe people of faith need a new “theology” of investment. We need to rethink, in economic and investment terms, what we mean by faith, sin, and salvation.
For hundreds of years, the Western church viewed faith in a highly individualistic manner. Sin was a failure to exhibit upstanding personal behavior. And the goal of religious life was personal salvation.
In recent generations, liberation theologians like Gustavo Gutierrez have reminded the church that faith is not only personal but public. Sin, then, is not simply a matter of immoral personal behavior, but of structural injustice that keeps some people poor and marginalized while others live in luxury. Liberation theologians have called the church to a fundamental examination of the societal structures of power, asserting that the church must follow Christ in expressing a “preferential option for the poor.”
Like religion, investment is often seen as an individualistic and highly personal act. The goal of most investment activity has been financial “salvation,” whether for the individual or the institution. For the most part, little thought is given to what economists call the “externalities,” the unintended consequences of commercial activity which are not reflected in the transaction price.
Just as liberation theologians redefined the terms of faith, socially responsible investors must redefine the terms of investment. We must reconsider the true return on our investments. How do our investments affect employees, communities, the poor? Do the profits come from better ideas and useful services, or from the exploitation of workers and the degradation of the environment? These non financial effects are part of our investment return, and our legacy to the future.
THE BUSINESS WORLD IS OFTEN strikingly narrow-minded, viewing complex social issues only in relationship to the corporate bottom line. For all but the most forward-thinking companies, broader social problems such as disparities between rich and poor, malnutrition, inaccessible healthcare, and environmental degradation become concerns only as they result in changing regulations that affect corporate balance sheets.
The social investment tradition was born of a more holistic vision that acknowledges the many ways business decisions shape our economic and social community. Yet as commonly practiced, social investing fails to live out that vision, often addressing only the most obvious manifestations of many social issues, without touching the web of supporting economic and social relationships.
For instance, companies that produce chemical fertilizers, pesticides, and herbicides are demonized by social investors concerned about our chemically dependent agricultural system. But food processors and retailers, equally complicit in this system, receive the blessings of most social investment firms. Similarly, most socially screened funds would never touch the stock of a tobacco-producing company such as Philip Morris, yet few even consider avoiding the stocks of convenience stores, supermarkets, or drugstores because of their tobacco sales.
Another example concerns the identification of “good” jobs. Socially responsible investment firms often tout team-oriented corporations where workers are treated as partners or associates. But those same firms tend to ignore the fact that many of these corporations use non-unionized workers who are paid substantially less than their unionized colleagues at other companies.
A significant part of the problem is that we who are concerned about social and environmental justice have yet to construct a different story about how the economy works. We are concerned about issues like the widening chasm between rich and poor, the ease with which large companies shed “redundant” workers, and the collapse of ecosystems from the ozone layer to ocean fisheries. Yet when it comes to investing our money, even the “socially responsible” firms often feed us only the traditional economic measures of performance.
WE NEED TO LOOK AT INVESTING with new eyes. We need to remember that statistics like the Gross Domestic Product measure cash-based transactions, not quality of life or human progress. We must expose the skulduggery of statistics that count environmental catastrophes like the Exxon Valdez oil spill as hugely positive economic events (because of all the cash that changes hands in the cleanup); that value a stand of trees only when it is cut down and not when it adds a year of growth in a virgin forest; that measure only work that contributes to the cash economy, discounting the essential work (often performed by women) of food gathering and preparation, child care and education, clothing production, and a myriad of other life-sustaining activities.
We also must closely examine the sources of corporate profits. Often our earnings stem not from innovative business practices and corporate genius but from corporations exerting economic and political power to force others to shoulder the costs of commercial enterprise.
Do we really profit when corporations lay off workers in the United States and Europe and open new factories in impoverished countries where workers organizing for a better life are often brutally repressed and environmental standards are more lax? Do we really profit when corporate CEOs hire a battery of tax attorneys, accountants, and lobbyists to mine the tax code for every loophole, and lobby for advantages, despite the consequences to society at large?
Do we profit when corporate leaders routinely exact property-tax abatements from local officials concerned about job creation, even though such measures undermine city services such as quality education? Do we profit when corporations outsource work to other “more efficient” firms where workers receive lower pay and no benefits?
When corporations engage in these antisocial behaviors, they are in effect exacting subsidies which pass directly to shareholders and indirectly to corporate managers whose pay is increasingly linked to bottomline financial performance. Companies can continue such policies because they have convinced us that we depend on the health of corporate enterprise for our personal and communal well-being.
FOR TOO LONG, THE SOCIAL investment community has focused its attention on differentiating between “good” corporations and “bad” ones, often blacklisting those companies which are most “guilty.” But such efforts have little effect on the systemic injustice that pervades the entire economy.
We must find ways to raise the fundamental structural questions of justice, to address the unsustainable concentration of capital and power that exists both among individuals and within the business world. Such disparity is reflected in the distribution of profits in the waning days of the current bull market. The largest companies like Microsoft, Coca-Cola, and Procter & Gamble show the strongest gains, while the equities of equally successful but smaller companies languish. This parallels the wealth disparities of the broader society, where the rich receive a highly disproportionate share of the tax cuts and market returns, while many more people remain mired in poverty or struggle along from paycheck to paycheck.
Yet well-intentioned social investors continue to direct the bulk of their investment dollars at corporations–albeit at those that are willing to be led by a diverse board and that voluntarily open their policies and practices to public scrutiny. While the issues social investors have pushed within these corporations are vital, and such efforts must continue, they are not enough. Like others confronting the power of corporations, social investors remain largely dependent on the benevolence of corporate leaders to consider and address their questions.
It’s time for social investing to begin focusing on who controls the capital and to what end. Capital in an economy, like blood in a body, must circulate to promote the health of the whole. The full power of social investing will not be realized until we learn to invest in ways that transfer economic power away from multinational corporations and into the hands of local communities. In addressing the systemic issues of economic control, social investing becomes political investing.
Our investing becomes political as we direct funds in ways that change the control of capital in our society and help build stronger communities. These include investments in community loan funds and other groups that focus on small-scale community development–economic activity which Wall Street ignores.
Successful community-based business models exist, but they do not follow the rules of the market. They do not look to maximize financial return at the expense of all other considerations. In such models, the goals of community development and human progress supersede the objective of simply stimulating economic activity. These models affirm that security, happiness, and true wealth are found not in money but in relationships built upon trust, reciprocity, and sharing.
The lost skills of community building are being reclaimed by workers in smallscale community economic development. These models allow capital to circulate under the control of communities. Affordable housing, job creation, even sustainable agriculture are being set in place.
Other small businesses are working to increase employee ownership and control in an attempt to share the wealth of production more equitably. Democratic capitalism is being built around models ranging from cooperative businesses to traditional businesses seeking to increase worker ownership through employee stock ownership plans (ESOPs) and universal stock options, which extend a powerful wealth-creating vehicle from top corporate officers to all employees.
Community-based banks, credit unions, and loan funds are another source of vibrancy and hope to hundreds of communities and neighborhoods throughout the United States. These institutions often support the creation of affordable housing and locally-rooted small businesses. Today, such funds collectively control $4 billion in capital–just a small fraction of the $1.1 trillion invested according to social investment criteria. If more of the dollars invested with socially responsible goals were diverted to such institutions, the impact would be tremendous. And the rules of who controls the capital and to what end would begin to change.
Some social investment mutual funds have begun to invest a portion of their assets in community economic development. The Calvert social investment funds each allocate between 1 and 3 percent of their assets to community investments. If all mutual funds were to similarly direct just 1 percent of their assets toward community economic development, tens of billions of additional dollars would be made available to strengthen communities.
Individual investors have a role to play. As a start, you might consider “investment tithing”–placing 10 percent of your investment money into community-development projects. While some such investments will offer financial returns that are below market rate, they will boost the “social performance” of your portfolio. If we are willing to trade maximizing our financial return for greater justice, we can positively affect the control of capital in the economy, and perhaps undo some of the damage brought about by the excesses of the capitalistic system.
We people of faith must end our captivity to the values of the market and begin investing in ways that extend economic justice to all people. We must focus attention on the effects that our investments have on the poor, the environment, and the local community. Only then can social investing evolve from a movement born to assuage guilt to one that offers the hope of lasting healing and profound change in an increasingly fractured and fear-bound world.