A Quaker Approach to Socially Responsible Investing

Have you ever stopped to consider the variety of M&Ms currently available on the market? It might just be a useful exercise to try. Why, I can think of several off the top of my head – from original and peanut, to dark chocolate and peanut butter. And that’s not even getting into holiday-themed M&Ms.

Why should we be thinking about M&Ms? Well, this variety is a relatively new phenomenon. M&M's were first sold in the United States in 1941, and the peanut version in 1954, but it wasn’t until the 1990s and later that all of the others became widely available. And M&Ms are not alone in this regard.

Think of the variety of Oreos, Reese’s Cups or Doritos now in the grocery aisle. And this phenomenon is not limited to snacks. From detergents and banks to automobiles and airlines, today we are faced with an abundance of consumer options.

So what’s going on here? Well, there are probably a variety of explanations, but one I would suggest is that we have in many respects turned a corner in the way producers view the market. Early on in the production of the first car widely available in the U.S., Henry Ford was famously said to have commented that "People can have the Model T in any color - so long as it's black." Producers were attempting to mold public tastes to match the products they were releasing. If we think about this in economic terms, supply was in many ways driving demand.

Today, it seems as though the tables have turned - probably for a number of reasons, producers are attempting to meet consumer demand with what they are producing. This has some important implications. What you do with that dollar in your pocket is significant.

When you buy a bag of Almond M&Ms, for instance, you are making a decision that your dollar is less desirable to you than that candy, or milk, or whatever you happen to be purchasing. Similarly, your local grocery store would prefer your dollar to yet another bag of chocolate covered nuts. A product will only succeed if people like you and me decide that it is worth trading some of our limited funds for it.

And how much any product is worth is in part dependent on what I and others are willing to sacrifice out of our wallets. Value is not something intrinsic to a product on the marketplace. It arises from the process of buyers and sellers reaching mutually beneficial agreements to trade something they desire less for something they desire more.

Once you understand that you are impacted by the choices of others, you can begin to recognize that your choices similarly have repercussions that extend beyond yourself. You are relaying local, personal information back to that global economy. And, you are doing so in a far more important way than merely stating an opinion or a preference – you are putting your money where your mouth is.

In fact, it might be helpful to think of monetary choice as a form of voting. While I might vote for dark chocolate M&Ms, someone else might vote for good old plain. Now, it’s important to recognize the limitations of voting. Just as your single vote will not determine the outcome of the Presidential election this November, your purchase of a particular brand of celery will not determine the future course of the agricultural sector. But we still greatly value the ability to vote, and see the act as participating in something larger than ourselves in important ways.

Plus, just as there are ways to maximize the impact of one’s vote, there are ways to maximize the impact of your spending decisions. First, boycotts and similar tools have taught us that collective choice has a greater impact than acting alone – even in a global marketplace.

Second, and perhaps more importantly, we vote in the market far more often than in the political realm. Think about how many times you’ve voted for candidates or ballot measures in the last year versus how many times you’ve bought gasoline, for example. Every transaction sends a message. And in the case of investing, voting is almost constant rather than a single transaction.

So, what does any of this have to do with socially responsible investing? That’s an excellent question. A similar phenomenon of consumer empowerment is taking place in the realm of investments.

Business moguls and power brokers no longer define the typical stock market investor. Between individual investors; college and organizational endowments; group pension plans; 401(k)s; and money market and health savings accounts, a broad swath of society now constitutes the investment community.

With this expansion of participation has come a greater diversity in understanding regarding to what ends money is to be used. Paying attention to the bottom line is now only a part of the equation when evaluating the merits of any particular investment. Investments must increasingly measure up to some standard of social responsibility.

Socially responsible investing (SRI), then, can be defined as any attempt to make financial decisions based in some measure on some conception of ethics rather than solely upon economic considerations.

The approach now qualifies as a significant movement. SRI has grown into a multi-billion dollar phenomenon since its official beginnings only decades ago – largely as a response to the Vietnam War. News articles regularly report on the inroads SRI is making into individual, institutional, and organizational investment decisions. Business schools are now even training their students in how to successfully manage their own SRI funds so as to be more marketable in the current economy.

So how does SRI work? Well, there are three main components, which we’ll go over in turn: screening, shareholder advocacy and community investing. These are basically in order of frequency of application, though that is changing somewhat.

First, screening involves both positive and negative approaches. In the case of negative screening, an investor, mutual fund or institution reviews the placement of their assets and determines what investments are unacceptable. This can mean companies involved in the production of alcohol or tobacco, for example, or the arms industry or companies known for environmental or other abuses.

Now, figuring out where to draw the line here can be tricky, especially in an age of multinational conglomerates. What constitutes a threshold you are unwilling to cross? A majority of a firm’s sales? It’s profits? Gas stations are a good example here. They may seem to be primarily concerned with the sale of gasoline, but most often their profits derive primarily from the sale of lottery tickets and cigarettes.

Regardless, though, how much sales or profit is too much? Is over fifty percent too high a threshold? Are there issues on which you are personally more passionate or concerned about? The production of arms versus the production of tobacco, for instance? These are all tough questions, and they are one reason niche funds are being developed that focus on particular sets of investor goals. It’s also why considering SRI should involve a great deal of thought and prayer.

The second screen is positive – this means searching out those companies whose practices you approve of and rewarding those practices with your investment support. Again, though, similar caveats apply. Are you willing to overlook certain practices you might not fully support in order to support a broader goal or a particularly positive initiative or direction a company is taking?

It is unlikely that you will find very many funds or even companies that align with all of your principles, and restricting your pool of investments can increase your exposure to risk. Many SRI funds were heavily invested in health care and tech firms in the 1990s, for instance, and took a hit when those sectors declined.

The next component is shareholder advocacy. While this tool presents certain opportunities, its goals can to some extent run counter to those of screening. In the case of advocacy, you use your leverage as a shareholder to encourage or pressure corporations to move their policies and practices closer to your vision of an ethical business model.

This can be effective within companies that you already support and wish to see get even better, but others also use shareholder advocacy to shift the practices of more troubling industries. This strategy, of course, involves owning a portion of those companies, and so there are definitely sticky ethical questions to consider here as well.

The final component is that of community investing. This generally involves investments in projects deemed of social worth to the community but that may be considered too risky by traditional lenders – mortgages for low-income families, housing projects, etc.

The pooling of funds to lend out for such efforts can be done at the level of institutional investors, or by banks and credit unions established with the specific goal of supporting such projects. By placing your funds in a bank such as this instead of a traditional bank, you may sacrifice some return in exchange for the knowledge that your funds are spurring the kind of development you see as most valuable.

So what does SRI have to do with Quakerism? Well, the flip side of the opportunity the above shift in market relations presents is responsibility. Regardless of where you allocate your resources, they are contributing to certain goals, and every day you are contributing to those goals as opposed to others. This seems like a natural fit as an area to apply Quaker principles.

In The Covenant Crucified and The Quakers: Money and Morals, Doug Gwyn and James Walvin, respectively, have provided great resources for understanding the early Quaker struggles with just this issue. As they point out, it was just the very characteristics of plain speech and integrity these figures practiced that helped them succeed in the business world, and this resulting success in turn then brought pressure upon the traditional understandings of how to best go about living out these testimonies.

The issue of slavery was one of these early controversies. While many Quakers were in fact slaveholders, the tide began to turn in the 1700s. More than one hundred years before the American Civil War, the Religious Society of Friends began to divest from the slave trade for reasons that had nothing to do with profits and losses.

Rather, sensing their ethical integrity at risk, these Quakers came to see putting an end to their financial involvement with slavery as the only practical course available. Given their efforts to avoid companies that profited from the slave trade, many within the socially responsible investing movement to this day credit Quakers with being some of the earliest practitioners of the attempt to apply ethical beliefs in the economic sphere.

This tradition is still alive and well as Friends are arguably one of the most socially active religious groups today, including in the field of SRI. A quick review of major Quaker organizations reveals that from the American Friends Service Committee to the Friends Committee on National Legislation to Friends Fiduciary Corporation, all have SRI policies guiding their investments. In other words, this is an issue on which Friends are actively engaged right now.

Now, I think it’s fair to say that tackling financial issues is far from a simple task. But it may be that to live out the Quaker faith in practical ways means balancing all of the Quaker testimonies in creative tension. To do so in a way that, according to Cooper, “not only affect[s] [me] personally but affect[s] all the human family and the whole created world” for the better. According to the Faith and Practice of The Philadelphia Yearly Meeting, “To be good stewards in God's world calls on us to examine and consider the ways in which our testimonies for peace, equality, and simplicity interact to guide our relationships with all life.”

In his 2002 book The Good of Affluence, John Schneider writes that “Christians ought to have a view of modern capitalism that is ‘world affirmative’ and ‘world formative’ rather than mainly negative and prone to strategies of separation and withdrawal.” In many ways this sentiment echoes that of William Penn, who in 1682 wrote that “True godliness don't turn men out of the world but enables them to live better in it and excites their endeavours to mend it... Christians should keep the helm and guide the vessel to its port; not meanly steal out at the stern of the world and leave those that are in it without a pilot to be driven by the fury of evil times upon the rock or sand of ruin.”

Quaker author Ben Richmond writes in Signs of Salvation of “a faith in God that implies rejection of the sway of mammon over our lives.” Such a faith frees us to use the resources at our disposal in creative and life-giving ways. Socially Responsible Investing, then, offers an opportunity to do just that. As such, it ought to excite the endeavors of Friends to live better in the world, to affirm that which is good within it, and to form and mend the world in ways consistent with the Quaker testimonies of simplicity, equality, peace and integrity.

Links