Put Your Money Where Your Conscience Is
The American Medical Assn. made headlines last week by urging investors to dump their tobacco stocks--but they didn’t include a prescription for action.
And to the ordinary investor who agrees with the AMA that tobacco is a “ruinous and enslaving product,” the prospect of sifting through more than 7,000 constantly changing mutual funds, to weed out the bad guys, may seem daunting.
What beleaguered consumers may not know is that help is available: A growing network of analysts and brokers are focusing on screening stocks and mutual funds for social responsibility so that investors don’t put their money into a company whose behavior they may deplore.
They may target products--such as tobacco, liquor or weapons--or concentrate on corporate behavior, focusing on issues such as pollution, discrimination in hiring or animal testing. “Right now, tobacco is at the top of the list,” said John Schultz of Ethical Investors in Minneapolis, who puts together personal portfolios. “Next are the egregious polluting issues, then probably liquor and gambling.”
Although it can get tricky (Does the “tobacco industry” include the manufacturers of the paper and glue used in cigarettes?), consumers can be their own detectives to some extent as they shop for mutual funds, Schultz said.
“Read the prospectus, which isn’t easy because it is written by and for lawyers,” he said. But the first few pages will spell out the philosophy of the fund managers, which cannot be changed without a shareholder vote. “If the portfolio states they will not buy tobacco stocks, they won’t. If nothing is said, they probably will.”
Co-op America in Washington, D.C., which promotes socially responsible investing, recently screened the top 15 mutual funds for tobacco stocks. Their results, announced earlier this year, showed that nine of the funds had tobacco stocks among their top 10 holdings, and that collectively the tobacco holdings of the 15 funds added up to 70 million shares worth $3 billion.
Nonsmokers increasingly go to great lengths in their personal lives to avoid tobacco smoke, said Alisa Gravitz, executive director of Co-op America, in an interview. “Our bet was that they would also like their portfolios to be smoke-free.” Not only was the extent of tobacco holdings eye-opening to many, she said, so was the realization that, because mutual funds are constantly buying and selling, “any fund might add them next week or next month.”
For the investor trying to break the tobacco habit, she offers this advice:
* Be aware that there are about 40 mutual funds that are tobacco-free by stated policy. If you have a financial advisor, ask for the list.
* Check your pension fund; many funds today offer an array of choices. One example is TIAA-CREF, the $150-billion primary pension fund for the nation’s teachers. It includes a tobacco-free fund.
* Any stockholder who owns $1,000 in a company can file a shareholder request directing the managers of the company to be more conscientious about a given issue, which, if approved by the SEC, must be put to a shareholder vote.
Gravitz notes that there are options other than the stock market, such as investing in community banks. (For Co-op America’s free 32-page handbook, “Financial Planning for Responsible Investors,” call [800] 713-8086.)
The concept of socially responsible investing is growing, Gravitz said. From 1984 to 1994, dollars in so-called socially responsible funds jumped from $64 billion to $639 billion, the number of funds available grew from three to more than 40, and Nelson’s Directory of Financial Service Companies, which offered no listings for social investment services five years ago, now includes more than 800.
Still, these remain small numbers in the overall market, said Steve Dyott, research director for the New York-based Council on Economic Priorities, which researches the social records of corporations. “I think every step taken helps, although there is still resistance to the idea,” he said of the AMA statement. People fear that taking social factors into account will limit their potential income, he said, despite statistics to the contrary.
