Put Your Money Where Your Mouth Is: 4 Ways to Invest With a Conscience

Source: Thinkstock

For many people, investing has become more than just a way to make money or plan for long-term financial security. More and more, financiers and potential shareholders are looking at companies in a more critical light, beyond simple measurements of growth and annual rates of return. As the general public becomes more aware of what’s happening around the world thanks to a rapid ability to share or track information through Facebook and Google, businesses big and small have come under higher levels of scrutiny than ever before.

We’ve entered an age in which socially responsible investing has gone mainstream. Shareholders are now taking steps to ensure a thorough qualitative analysis is taken on the companies they are potentially interested in and emphasizing behavior as a chief concern. Fund managers have even developed steps to ensure investors have a better idea of what their money is backing by introducing labeling systems and even a screening process to identify companies that are better managed.

Steven J. Schueth, president of First Affirmative Financial Network, told Bankrate that over the past couple of decades, the idea of socially responsible investing has morphed into a much more inclusive term than ever before. He told the publication that while seeing a return is a priority, it’s not the only thing on investors’ minds.

“When I say SRI, the acronym is, for me, sustainable, responsible and impact investing. It’s about investing to do more than just make money,” he said. “We want to make money, but we also want to have a positive impact on the world as we’re making money.”

There are pros and cons to becoming a socially responsible investor, and taking the extra steps to go more in-depth with qualitative analysis comes with the costs of extra time and effort. With so many issues facing the world today, there are those who think that smart financial choices on the part of the investment community can actually help spur some positive change in the world. As the idea of investing with your conscience becomes more popular, it will only get easier, as well. Fund manager Amy Domini explained to The Guardian that capitalism can be a tremendous positive influence in the world when coupled with progressive thought.

“Why wouldn’t someone want to participate in helping to make finance part of the solution to today’s social issues?” she said. “You can take the tool that is being an investor and use it to cast a vote for peace, social justice and other causes that you care about.”

So what steps can average investors take to make sure they’re putting their money where their mouth is when it comes to companies they’re backing? There are several ways, but it really comes down to utilization of existing systems and taking advantage of one’s own personal analysis.

Here are four easy ways to make sure the next investments you make are socially responsible and will rest easy on your conscience.

Source: Thinkstock

1. Develop a knack for qualitative analysis

The one thing that will be most helpful in deciding where to place your money is a sharpened ability to analyze information for qualitative integrity. This isn’t a skill that can be learned overnight: It will come with experience from stock analysis over time. Experience will lend a hand after a while, as red flags start to become apparent in looking over companies’ data and business practices. Of course, a lot of concerns will be based on personal preference, so each investor’s qualitative analysis skills will differ.

Some major factors to look for when conducting your own analyses should include governance and ownership structures, ownership practices, disclosure policies, labor relations, workers’ rights, and competitive strengths. Many companies will show strong dedication to some of these items while disregarding others. For many public companies, a huge amount of information is available, and a simple Google search can often bring up dirt on companies with the cleanest of images.

Developing a strong skill set for accurately judging a company’s quality will be the most important tool in a socially conscious investor’s arsenal. It will come in handy in situations where you’re forced to make quick decisions or “go with your gut.” After all, learning to trust your own judgments is of paramount importance in the world of finance.

Source: Thinkstock

2. Become familiar with “sin stocks”

The term “sin stock” does have a way of jumping out at you, but it probably doesn’t mean what you think. These are not shares in companies that are actively and knowingly breaking the law or causing undue damage – they simply just have a reputation for being somewhat controversial in the eyes of some investors. Sin stocks include shares in companies that reside in industries such as alcohol, drugs, guns, and gambling. These are big-time industries that bring in huge amounts of revenue, but some people would rather not put their money into those sectors.

As The Street explains, sin stocks typically are shares in companies that provide stress relief or outlets for people. When times get tough for many, such as with the financial crisis of the past six years, overall marketplace trends tend to jet downward. However, many sin stocks seem to be immune to the same activity. Sin stocks are propped up by an extra quality that lends them some staying power. While these shares are not completely immune to a recession, they do have a good survival rate.

A good example of what could be classified as a sin stock is Anheuser-Busch (NYSE:BUD), a company with a rich history in the United States and which now has 13 breweries across the country. Anheuser-Busch’s main product line is composed of alcoholic beverages, which some people would rather not invest their money in. However, what makes alcohol sales interesting is that while the economy falls on hard times, sales stay up.

According to CNN, alcohol sales went up 9 percent during 2008, the height of the recession. 2009 saw sales sag again, but 2010 saw another 9 percent increase. It goes to show that even when times are tough for many, heading to the local bar for a beer never really falls out of style. Anheuser-Busch was able to stick it out during the recession and make some headway while plenty of other businesses saw dramatic drop-offs or were forced to close completely.

So while scouring the market as a socially responsible investor, knowing what exactly a sin stock is and why it is labeled as such is important. The ultimate choice of whether you want to invest in any companies labeled with the “sin” moniker is up to the individual. Don’t be completely swayed by tags that you may or may not agree with.

Source: Thinkstock

3. Look for pre-screened funds

Over the past couple of decades, the screening process deployed by fund managers has grown in scope and size. There are levels of scrutiny placed on many companies that didn’t need to bother worrying about a generation ago, but with more available information at investors’ fingertips, companies have become more wary about their public image. In previous years, screening methods were meant to exclude companies that relied heavily on animal testing or were notorious polluters, for example.

These days, there are many more things fund managers look for when selecting shares to bring to their clients’ attention. Bankrate was once again able to get some great details about the newer generations of screens from Julie Gorte, senior vice president for sustainable investing at Pax World Management in Portsmouth, New Hampshire.

“We put our screens or criteria into five general areas. One is environment. The second is workplace practices, which include diversity, labor management relationships. The third is corporate governance, fourth is community impact, and the fifth is product safety and integrity,” she said.

U.S. News & World Report explains that the screening process is constantly evolving, and some fund managers are now employing strategies to find companies hitting above-average standards. These procedures can look for companies exhibiting forward-thinking views on the environment and social issues, making them attractive options to certain investors.

It’s incredibly important to note that screening practices can vary wildly, so it’s best to perhaps even develop a personal process to determine the viability of others’ abilities to properly screen. This is why it’s a priority to first develop a personal sense of qualitative analysis to make sure you really know where your money is going.

Source: Getty Images

4. Watch how companies respond to change

Once again, your personal ability to analyze for quality will play a big part in determining if you agree with how companies respond to changes in social norms or emerging environmental information. For example, taking a critical look at how BP (NYSE:BP) handled the Deepwater Horizon oil spill disaster did not inspire a lot of confidence in the company’s leadership or corporate priorities. This is not the kind of behavior investors want their money supporting.

In contrast, there are many examples of big businesses evolving over time to reduce their impact and bring about positive change, not only in society but in their corporate culture. Companies like Target (NYSE:TGT) and Nike (NYSE:NKE) have been big targets of critics in the past but have since taken measures to improve themselves.

Many companies have come out publicly in support of marriage equality over the past few years, something that only a decade ago was thought to be politically toxic. Others are taking measures to reduce their carbon footprint and improve sustainability in the face of global climate change, like Levi’s , eBay (NASDAQ:EBAY) and Apple (NASDAQ:AAPL). As new information emerges and society adopts new understandings of equality measures, there are companies making the most of the opportunity to have a positive impact.

In order to become a more socially conscience investor, it takes a bit of effort. But an easy way to actually have a positive impact around the world and still make money is to make sure that you’re putting your investments to work inside companies that exhibit forward-thinking tendencies.

Rest assured knowing that the work you put in today will pay off immensely for a brighter tomorrow.

Even if you know what to look for, it can be challenging to identify companies that are socially responsible. Vague or incomplete disclosures (a red flag) or mixed media coverage with vehement pundits on either side can muddy the waters and make seeing what’s really underneath difficult. We’re not omniscient, so take our suggestions with a grain of salt, but a few weeks ago we highlighted some companies that appear to be making a meaningful difference in the world. Here’s a look at them.

1. SolarCity (NYSE:SCTY)

SolarCity is at the forefront of the coming wave of renewable green energy that is starting to chip away at the stranglehold the fossil fuel industry holds on most of the world. American business has been sitting by while Germany has taken the reins as the world’s solar leader, although solar has finally started to pick up momentum across the United States. SolarCity became one of the first publicly traded solar installers in the United States in late 2012, and last year saw growth of its customer base by more than 100 percent, according to the Mercury News. But SolarCity is doing more than just supplying cheap, renewable energy to communities.

Recently, the company has announced a plan to introduce an online platform to sell debt investments backed by its solar projects. Individual investors will be able to take part, which was previously only available to large lenders. By introducing this new platform, SolarCity is opening up the solar energy market to many more people who were previously shut out and allowing individual investors to support renewable energy.

In the words of CEO Lyndon Rive, “people want to support clean energy development. Customers are seeing the benefits of getting solar for their homes but they would like to participate in other ways as well.” He added that, “With our investment platform, we’re hoping to allow far more individuals and smaller organizations to participate in the transformation to a cleaner, more distributed infrastructure.”

Source: Getty Images

2. Target (NYSE:TGT)

Being a primary rival to Wal-Mart may be enough to win many consumers over, but retail giant Target has been putting its money where its mouth is for far longer than Wal-Mart has even been around. Target established a corporate responsibility mandate that dates back to 1946, promising to return 5 percent of the company’s total profits back to local communities. Now that Target has built themselves into a national power, that 5 percent has come to add up to more than $4 million per week.

Target has also made large strides in increasing its organic food offerings, purchasing sustainable seafood products, improving packaging sustainability, and increasing internal efficiency efforts to be less wasteful. The company has also made it a priority to reduce the amount of green house gases it emits into the atmosphere, lending a hand to fighting global climate change.

Target may still be up against the likes of Wal-Mart and other big retailers, but the steps the company is taking to improve society definitely sets it apart.

Source: Thinkstock

3. Nike (NYSE:NKE)

One company that is making a surprising push to better communities around the world is athletic clothing and shoe maker Nike. After pushing through many hard years in which worker’s rights organizations had called for boycotts, Nike has gone a long way to clean up its image. The company is now making public instances of labor violations it finds in factories producing its merchandise, and taking necessary steps to see that they are taken care of. While the company is still fighting this battle in the eyes of many, it has taken big strides in the right direction.

Another way Nike is changing its business model is by incorporating drastic new sustainability and innovation standards. As Fast Company reports, Nike has created an app called ‘Making’ that lays out the environmental impact of different production materials. The app came out of the company’s efforts to fully remove hazardous chemicals from its products by the year 2020.

Nike has begun work on a program called ‘Launch’ in a partnership with NASA and the U.S. State Department. Launch is an attempt to develop sustainable materials that can be used on a wide scale, helping alleviate many issues caused by wasteful production techniques.

Source: Getty Images

4. Hewlett-Packard (NYSE:HPQ)

Hewlett-Packard has made a lot of noise over the past several years for being a leader in turning the computing industry away from the use of “conflict minerals,” and even earned the top spot on Corporate Responsibility Magazine‘s list of the Best 100 Corporate Citizens in 2010.

Alternet does a great job of laying out many reasons HP has made big strides in winning over ethically conscious consumers, including lobbying for legislation prohibiting the use of ‘conflict minerals,’ and even kept up its effort after it was found the company itself was not guilty of using them in the first place.

The company has also put a lot of effort behind creating and using more sustainable packaging for its products, cutting down on the amount of waste generated as a result. It has since gone on to be one of the corporate world leaders in this effort, and are setting the example for other tech and computing businesses to follow.

More From Wall St. Cheat Sheet: