Chronogram - What We Talk About When We Talk About Socially Responsible Investing

What We Talk About When We Talk About
Socially Responsible Investing

An Interview with Beth Jones of Third Eye Associates

Ethical investing is nothing new. In the Judeo-Christian tradition, religious values have been used to direct financial planning since Old Testament Jewish law dictated community-supporting investment up through John Wesley's invocation to his Methodist followers to employ money as a social tool to advance the teachings of Jesus. In the early 1980s, religious and secular forces raised an international outcry against Apartheid that led to large-scale divestment in companies that did business with South Africa. In the past 20 years, however, interest in socially responsible investing (SRI) has gained serious traction in the US. According to the Social Investment Forum Foundation, the amount of money invested in SRI in the US was $2.3 trillion in 2005—a 15-fold increase from 1995, when there was only $10 billion invested in SRI. In addition, there are now over 200 SRI mutual funds for investors to choose from, employing a variety of screens, from "sin" screens (alcohol, tobacco, gambling) to the environment. Experts attribute the rise in SRI to increases in return on investment, corporate scandals, the rising desire by people to invest with their values, and the increasing prominence of women investors.

I spoke with Beth Jones of Third Eye Associates, a Red Hook-financial consulting firm, about the growing interest in SRI.
—Brian K. Mahoney

Brian K. Mahoney: We hear a lot about socially responsible investing, but SRI is a fairly broad concept. Can you please explain what SRI is?

Beth Jones: Socially responsible investing is really about putting your money where your mouth is. Socially responsible investing is a rather broad concept and different groups interpret it differently, based on their particular values. So, for instance, there are socially responsible funds that target Catholic investors, which essentially are looking for companies that are anti-choice. The most popular types of socially responsible investment are mutual funds like Calvert or Domini, which use environmental screening. So when the fund managers look at companies to choose for their particular funds, they're looking for companies that are paying attention to the environment. They also look at their personnel policies within their companies, they look at their human-rights policies, they look at discrimination against gays and lesbians, and the status of women. Those are some of the most common socially responsible screens, but essentially, an SRI investor is faced with the question: What are your values and where do you want your money to go?

BKM: If I want to "put my money where my mouth is," how do I do it?

BJ: There are some no-load socially responsible funds—

BKM: "No-load." What does that mean?

BJ: No-load means that you're not paying a commission. Essentially, you could just go online and find a socially responsible fund company and you could manage that money yourself. Most people, however, prefer to have an advisor who helps them determine what's going on in the market. One of the problems of going it alone is that your access to research is somewhat limited. Although there is a lot information on the internet, you don't get the same depth of information and access to what's really going on in the fund as you would with an advisor. An advisor can asses if you have a fully diversified portfolio. On your own, you might think you have a diversified portfolio when, in fact, if you looked internally at the funds you might have the same holdings or an overlap between one fund to another where you have the same stocks.

Through an advisor, you can also access managed accounts. A managed account is when you have a larger amount of money, and that gives you access to institutional managers—meaning they're managing large volumes of money and access to better information. If you have a small amount of money, the only funds you can access are the retail mutual funds.

BKM: Such as?

BJ: Such as Calvert. Calvert's a fine company, but there are professional money managers that are dealing on a higher institutional level at much higher volumes, so the internal expenses are considerably lower and they're the experts in the industry. So if you have $50,000 or more, you can have access to the experts in the industry versus going to with a retail mutual fund or a no-load mutual fund.

BKM: Can those with limited resources be part of the SRI scene? What if someone only has $1,000 instead of $50,000—can they still get in?

BJ: Yes, you can.

Continued...

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