Ask the grumpies: Socially responsible investing

Linda asks:

So many times I read/hear about “greedy corporations” doing bad things, but then I start to think about the following.

Public companies (which are mostly what people mean when they call out corporate greed) are owned by shareholders. The executives of those companies have a responsibility to earn money for those shareholders, which is why so many of these “greedy things” happen: execs make decisions based on the bottom line. (Yeah, those execs are also earning money (a LOT of money) for themselves, as well. They are hired to make money for the company (a.ka. the shareholders) and if they meet the goals/targets for sales, etc. they get lots of money and bonuses. But that’s a sideline here.)

However, just who are these shareholders who are ultimately behind this drive for making profits and increasing the value of their shares? Why…it’s us! We’re the ones putting money in our 401(k)s, 403(b)s, and/or state and private pension funds, which are comprised of shares in these “greedy corporations.” Right?

And if I’m not misunderstanding it…holy hell, isn’t this a moral dilemma for people who care about values and issues, such as the environment, human rights, and social justice? How many of us who say (for example) we abhor Walmart’s employment practices and/or boycott shopping there, are actually shareholders in Walmart? Or if we hate frakking, yet are also shareholders in companies that do so?

Ethical investing is HARD when you have a limited set of funds to choose from. I’ve poured over the prospectuses of my Vanguard 401(k) funds and shut that information away in my brain so I can pretend I don’t know what’s in those funds and that life is all sunshine, blue skies, kittens, and puppies.

Am I totally misunderstanding how my 401(k) works? Or is there really a utopia of steady investment growth for a comfortable retirement (one where I don’t have to live in a box and eat cat food) that doesn’t exploit others?

You would probably be interested in looking into SRIs (Socially Responsible Indices) within your retirement plan.

For the most part though, those of us doing broad-based index investing aren’t paid attention to by companies.  We’re neutral– sinning by omission, not by commission.  We’re not forcing them to change their behavior and we’re not causing them to have the bad behavior.  We’re not the people who move the markets because we’re not paying attention to individual companies.  Yes, we could do better by doing as you say, picking funds that are socially conscious companies and when we do that we miss out on Exxon’s growth or Phillips 66’s dividends.  We could do even better, if we’re wealthy, by buying huge amounts of stock and going to share-holder meetings to make our social justice positions known.  But of course that adds risk, and most of us aren’t that wealthy.

An alternative, of course, is to keep your money in the broad-based indices and invest your extra returns in charities that you care about.

5 Responses to “Ask the grumpies: Socially responsible investing”

  1. chacha1 Says:

    My feeling about “socially responsible investing” is roughly the same as my feeling about political activism: it is best accomplished at the local level.

    Getting upset about the companies included in your 401(k)’s available funds is a great way to lose sleep over nothing that you can influence. Circle of Control, folks, circle of control. You need money for retirement. The safest way to accomplish that is to put money away in tax-advantaged funds, preferably with an employer match. Choose the *best available* fund option(s), and then do your best to forget about the funds and instead go spend money in your community to the extent you can. Support local charities instead of March of Dimes. Support the local bookstore instead of Amazon. Buy produce at the farmer’s market instead of a national supermarket chain. Volunteer at your local parks.

    Likewise fretting about national-scale political events, or those in other states. Talking about them online may relieve our feelings, but when it comes to personally making a difference, there is no substitute for local action. Write to YOUR representatives – and follow their votes. Attend YOUR school-board and county commissioners’ meetings. Read your local news, and find out which problems are real and which are imaginary. (Example: real problem: proposed asphalt plant in a National Park-adjacent county with three rivers. Not a real problem: commissioner said something stupid. Guess which one has gotten more coverage?)

    There has always been more talk than action among the citizenry, and for many years it was somewhat excusable because citizens simply didn’t have access to the information needed in order to a) make informed choices and b) harass their legislators. That is not the case now.

  2. Debbie M Says:

    My first retirement investments over which I had control were in a social responsible fund. But I have three problems with it: high fees, lower returns, and we didn’t agree about how to define responsible (they like Microsoft, for example). So now I’m mostly into index funds. Although I did like that the socially responsible investment company had leverage with the big companies and could often get them to change their policies or be booted from a pretty big investment fund.

    And now I realize that when I’m buying and selling stocks, I’m really affecting only other shareholders. I mean, it’s not like I ever get in on the first time a company sells shares to the public where the actual company gets the money. Some of the other shareholders are CEOs, but most are probably just random people we know nothing about.

    Frankly, I think the evil greedy stuff is mostly for head honcho pocket stuffing. If part of their pay is in stocks, then maybe they will also care about the shareholders. Or maybe they have to care about shareholders if they’re afraid of getting fired, though with their golden parachutes, I can’t see how they’d mind.

    My current thinking is that as a stockholder, when I write letters and sign petitions, they mean more (when I can say that I’m a stockholder). Also, if I own the stock of slimy companies, then it’s a win-win. Either they do well and I get some of the profits. Or they don’t and mwahaha!

    Occasionally I also find ways to invest directly in less slimy things, like my local food coop needed funding to build a second location. I still don’t know a good way to find opportunities like this, and they are, sadly, a bit riskier, but you might be able to put some of your investments in places like this.

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