Pro-Active Investments, a better Values Based Investment Strategy

Investors are increasingly interested in seeking to align their portfolios with their values. Whether they are interested in reducing harm to the environment, promoting social justice issues like fair wages or avoiding products and services that offend their moral beliefs, investors desire to make an impact through their investments.  Investing with your conscience may not be your thing, but it's working for people who are seeking a more holistic approach to investing.

“Values-Based" or “Impact” investing is about putting money into companies with strong track records on the environment, social & moral issues and corporate governance. Some investors try to accomplish this by screening out companies that have products or corporate practices that conflict with their own values. For many investors, having an impact with their investments has become just as important as donating to charity.

Surprisingly, our values can be compromised by even the most popular and “plain vanilla” mutual funds. One of the investments that I have owned for years as a core bond holding for safety is the Vanguard Short Term Bond ETF.   In 2017 I received a shareholder proxy with the following request from the board of directors. The board suggested that I vote against the following recommended shareholder proposal which would:

 "…institute transparent procedures to avoid holding investments in companies that in management's judgment, substantially contribute to genocide or crimes against humanity, the most egregious violations of human rights. Such procedures may include time-limited engagement with problem companies if management believes that their behavior can be changed. “ 

So, basically the board of directors is suggesting that I vote against a proposal for the fund to avoid purchasing investments that “substantially contribute to genocide or crimes against humanity, and egregious violations of human rights” I don’t know about you, but I would prefer not to invest in companies that substantially contribute to genocide or other egregious violations of human rights.

In today’s world, technology makes it possible to sift through incredible volumes of data, allowing investors to include or reject specific investments. Investors interested in this type of investing typically buy into a mutual fund that does the sifting for them, matching investment selection with their values. Traditional “responsible” investing focuses on excluding investments that oppose your values. For example, some equity investors exclude all companies that report revenues from tobacco, alcohol, or weapons manufacturing. Other investors may seek to keep their investment portfolio clear of all environmental abusers or fossil fuel producers. Religious investors may wish to create a portfolio that excludes companies whose products or practices contradict with their religious beliefs.

Excluding investments that conflict with your values is a good step, but investors are increasingly interested in taking their portfolio one step further and selecting investments that align with their values. What does it look like to select investments that align with our values, rather than simply trying to avoid investments that conflict with our values? I have found the answer to be something I’ve termed, ”pro-active values based investing”. By this, I mean proactively searching for investments that are positively influencing companies and cultures in ways that align with my values.  Is it possible for an investor to proactively seek and find investment opportunities with like-minded businesses whose values are consistent with his or her own values? In short: absolutely. This kind of pro-active investing is not easy to accomplish, but it is possible. I am passionate about creating sustainable solutions which will alleviate poverty, steward our environment, promote ethical business practices and fair wages for workers, protect human rights and break the cycle of human trafficking in the poorest regions of the world. I want to use my investment dollars to influence communities and cultures in ways that are consistent with these personal values that I hold dear. How can it be done?

Pro-active investing is achievable, but difficult because to accomplish these investment values requires one to pro-actively seek business investment opportunities that are having positive impact in these areas. I cannot simply screen out investments that are tied to alcohol, tobacco or weapons manufacturing. While screening is perhaps a step in the right direction, it falls far short of actually creating positive influence in the companies or cultures that I seek to influence. One of my old mentors used to say, “you can attract more flies with honey than vinegar”. What he meant is that positive influence comes by showing people a better way rather than scolding them for their current behavior.  If I want to influence companies and cultures, I need to align my investments with business people who are proving that business conducted in a just and righteous manner will in itself accomplish renewal, reconciliation and profit.

In Hebrew, two words are used to explain these concepts. “Mishpat” refers to “rectifying justice” which means that bad actions deserve punishment and positive actions deserve to be rewarded. Screening our investments can accomplish some level of rectifying justice. But the Hebrew word “tzedagh” is associated with true social and moral justice. Often interpreted as righteousness, “tzedagh”, when applied to business, brings forth “shalom”, or a peace that when fulfilled, will result in no need for “mishpat” because all will be as it should be, in perfect harmony. Is “righteous business” an oxymoron? I don’t think it needs to be.

You may say, that is pretty idealistic. I agree, but it certainly is a goal worth striving for in contrast to the corrupt, greedy and materialistic ideology which permeates business and investment in the poorest regions of the world.

To accomplish this type of values based investing, investing that truly has the potential to impact culture for good and bring about shalom, requires a very proactive approach and a lot of hard work.  It requires weekly phone and internet calls with business people around the world to find those who are truly like-minded in their approach to business. It requires getting on airplanes and flying to places in the world that you would never choose for vacation, meeting face to face with businesses, vetting their operations relative to multiple bottom lines including environmental impact, social impact and moral /ethical / religious values as well as sustainable and profitable business practices. This usually requires several days “on the ground” eating food that you don’t enjoy and frequently becoming violently ill before returning home. It’s difficult, laborious work, but the fruit of it is the most fulfilling investing that I have ever done in my 30 years as a financial advisor.

To date, I have deployed investment dollars for myself and others into business projects that serve to accomplish a myriad of our shared objectives. An apple orchard project in north Africa is alleviating poverty and facilitating reconciliation between previously warring tribes.  A coconut oil production facility in SE Asia is reducing “coconut slavery” and human trafficking through fair wage employment and vocational training. A biotechnology company on the Indian sub-continent has patented a biological treatment of municipal wastewater by installing its bioremediation process, which takes advantage of the microbes and plants from the local environment to remove toxins and biologically treat wastewater, delivering treated water suitable for non-potable use (i.e. agricultural uses). This is a low-cost, efficient solution to a rapidly growing problem for which conventional mechanical/chemical methods are less appropriate, especially in a developing country. These are merely 3 examples of dozens that I have been privileged to invest in through my pro-active approach to values based investing.

If you are concerned about the abuses and exploitations that have crept into modern business and, consequently, into your investment portfolio, I suggest taking a proactive approach to values based investing. If you don’t have the time or resources to accomplish this on your own, seek an advisor who is already doing it and who can help you align your portfolio with your values.