Peterborough Kids Magazine

Investing in Our World
Asking questions is the basis of ethical investing
by Mike Dupuis

Children are the most ethical consumers. They’re so curious about where things come from and how they are made. When kids start asking about food production, pollution, and preserving the rain forests, as they inevitably will, it’s an ideal time for you to discuss how you make purchase decisions. Discussing whether you buy “organic” or “Fair Trade” products, or where you invest your money can help your kids develop their decision-making framework.

An often overlooked way to “lead by example” is choosing to invest in ethical funds. Over the past three decades, socially responsible investors have influenced companies to reduce pollution, provide safer workplaces, observe international human rights standards, and become more accountable to society. In doing so, companies have implemented policies that reduce costs, improve the efficiency of operations, avoid legal liabilities, establish good community relations,and foster a more productive workforce. These are things we all want for society, our children, and ourselves.

Socially responsible mutual funds hold stock or bonds in companies that the fund manager selects based on financial performance and a prudent investment management approach as well as ethical, social and/or environmental concerns. To ensure the stocks chosen reflect the goals of the fund, each company considered for investment undergoes careful scrutiny.

The screening process

Everyone’s vision of an improved world is not the same. Some people are concerned about the production of certain products, such as alcohol, tobacco or weapons. Others are more concerned about the effect corporations have on the environment, while still others want to ensure the protection of basic human rights or foster progressive employee relations.

Because people have so many different values and beliefs, mutual fund companies sometimes have a challenge setting the specific criteria to be used when screening companies for inclusion in a fund. To be profitable, it is hard for a fund to focus entirely on one specific issue. Some specialize in environmental issues,generally. Others focus on social issues. But if you don’t want to support companies that specifically deal with genetically modified organisms (GMOs), for instance, you may have to select a fund that eliminates these companies but also screens on a wide range of other concerns, such as animal testing, child labour and nuclear power.

Ownership is taken seriously

Shareholder advocacy is one of the most important aspects of socially responsible funds. By pooling resources from many like-minded investors, the fund can then use the combined shareholder influence to help bring about positive social and environmental change. This activism is achieved through attending shareholder meetings, filing proposals, writing letters to management,exercising voting rights, and even threatening divestment. Socially responsible fund companies take this role very seriously. In turn, companies take your concerns more seriously when you are represented by a fund that owns one million shares.

Community investment

Many socially responsible mutual funds also set aside a portion (typically 2%)of their portfolio for community investments. A common misconception is that community investments are donations. This is not the case. These investments allow investors to give to a community in need while making a return on their investment. Many community investments are funnelled to community development banks in developing countries or to lower income areas, and they provide funding for community growth and development, such as housing and start-up money for small businesses.

It’s all good

Though they tend to keep their value better in stock market downturns, the performance of socially responsible mutual funds has generally been comparable to that of regular mutual funds. Socially responsible mutual funds are relatively new in Canada compared to Europe and the United States. Of the 7,500 funds available in Canada, there are only 50 that screen and advocate for environmental and/or social issues. These funds are not available through banks. Credit unions offer one family of socially responsible mutual funds whereas financial advisors who specialize in socially responsible investing have the full range of funds available.

As consumers, sometimes we are too trusting of mainstream ideas, and sometimes we do not trust alternative ones enough. In an era when we don’t just buy products but identify with them, how do we react when a company uses unfair labour practices or dumps toxic waste? How would our children react? Being selective in both purchase and investment decisions is the most important way we can influence the behaviour of businesses. And buying “Fair Trade” labels and using an ethical investment strategy may be the two most effective ways to support companies that behave responsibly and protect our children’s future.

Mike Dupuis, MBA, CFP specializes in socially responsible investing. He can be reached at 905-372-3535 or mikedupuis@sympatico.ca