By: Tessa Hebb
The year was 1975 and Nelson Mandela sat in a cold, dark cell in South Africa. His only crime was being black. This was a country where the white minority had imposed segregation and second class citizenship on the black majority of the population. The policy was called apartheid and for most of us it was an abomination. We boycotted South African products, and refused to visit the country. We prevented their athletes from participating in international sporting events, and declined their diplomatic exchanges. But despite international condemnation, apartheid continued.
When asked if the economic divestment campaign had brought apartheid to its knees, Nelson Mandela responded, "Oh, there is no doubt."
photo from www.anc.org.za |
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Fast-forward a quarter century, to the year 2000. Mandela has not only been released from jail but has served as South Africa's president and since retired. The apartheid system that once seemed an entrenched, unstoppable evil, has long since been dissolved - relegated to the history books. Why? What was it that forced apartheid South Africa to change?
Many will say it was the power of money that cracked the apartheid system. An investment boycott that stifled the flow of funds to the South African regime, led to the sort of political pressure that the consumer boycott had been unable to muster. It began with a few church groups and individuals who demanded that their bankers and investment brokers divest themselves of South African investments. Those pioneers were later joined by university endowment boards, pension fund trustees, trade union leaders, government officials, and philanthropic foundations. What began as a trickle of divestment, soon became a river.
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"By the time that apartheid had been delivered its knockout punch, social investing had become a credible force for change." |
Not only were direct investments in South Africa questioned, so were any investments in companies doing business in South Africa. Proxies were circulated demanding corporations divest themselves of all South African holdings. Shareholders exercised their rights, and soon companies adopted policies preventing any South African involvement. The river had become a flood.
By 1991, shortly before Mandela's release from jail, there were $625 billion in investment pools that did not allow for investment in the South African regime. After his release from jail, Mandela was asked if the investment boycott had played any part in ending apartheid. "Oh, there is no doubt" he replied.
The anti-apartheid campaign was the first real litmus test for the social investing movement. By the time apartheid was delivered its knock out punch, social investing had grown into a credible force for change. Social investing is about the power of our choices and values. It is about the strength we have when we work together.
Investment decisions are most often made on the basis of two factors: the expected return and the amount of risk involved. For example, choosing to put money into a GIC (Guaranteed Investment Certificate) at your local bank means you will get a known amount of interest paid to you at the end of the year. You take no risk when you make this kind of investment. If you chose to take more risk in the hope of making a higher return, you can invest in the stock market. The stock market allows individuals to buy and sell companies' shares, known as equity. Let's say you invest in one of the companies listed on the Toronto Stock Exchange. You purchase shares in a large publicly traded firm. Your return on the investment will depend on how well this company does over time.
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Socially responsible investing occurs when personal values are added to the rate of return and the degree of risk as factors influencing investment decisions |
If you don't want to buy individual shares in each company, you can purchase units of a mutual fund, where professional money managers trade equity to achieve the highest returns with the least amount of risk. In each of these decisions, the return on the investment and the amount of risk involved has been your motivation. The difference between ordinary investing and socially responsible investing occurs when a third factor - your values; personal, social or political - influence your investment decisions.
There are three distinct components in socially responsible investing (SRI). All three involve a choice that is based on the value system of individual investors. Socially responsible investing includes making screened investments, which means that companies that engage in unacceptable activities or business practices are excluded from the investor's portfolio. SRI can also entail utilizing one's ownership position to engage in shareholder activism; which means that social conscious shareholders try to influence the policies of the corporations in which they own stock. Finally, SRI sometimes involves moving away from public markets and into community investing through alternate investments, often found in community economic development, labour-sponsored funds, non-profits, co-operative ventures, and community loan funds. SRI can involve all three components or can be limited to just one. The common thread is that your values guide your investment decisions. : (For more details on the three types of socially responsible funds, please read the accompanying article "How socially responsible funds work.")
Today socially responsible investing has reached $6.7 billion in Canada. In the U.S. that figure has now topped a trillion dollars. It is estimated that one in every ten dollars invested in the U.S. is now part of a responsibly invested portfolio. The river of investment tied to our values and unleashed by our objections to apartheid, has indeed become a flood.
We are just beginning to understand the potential we have when we work together and apply our values to our investment choices. Socially responsible investing gives us a powerful tool to shape the kind of world we want to live in.
Tessa Hebb is an independent economic consultant and President of Hebb, Knight and Associates. She is President of the Douglas-Coldwell Foundation, a foundation for research and education in support of the social democratic movement in Canada.
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Related Straight Goods article: Who's to blame for corporate downsizing? Your pension fund manager may wield a bigger hatchet than most CEOs, by Adam Harmes.
Where to find more information on socially responsible investing:
in Canada
The Social Investment Organization,
366 Adelaide Street East
Toronto, Ontario, M5A 3X9
The 1998 Ethical Money Guide, Eugene Ellmen,
James Lorrimer & Co., Publishers
in U.S.A.
The Social Investment Forum,
1612 K Street NW, Suite 650,
Washington, DC 20006
www.socialinvest.org
The Good Money Web Site
www.goodmoney.com
How socially responsible funds work: three types of SRIs
By: Tessa Hebb
1. Screened Funds:
Canada's largest group of screened funds, Ethical Funds offered by the credit union system, screen for investments in companies that are non-tobacco, non-nuclear, non-military, with positive industrial, environmental, and human rights records.
2. Shareholder Activism:
Yves Michaud is one of Canada's best known shareholder activists. Over the last five years he has fought for shareholder resolutions that challenge corporate governance practices in Canada's largest banks. In particular this campaign has focused on limiting excessive CEO salaries paid by the banks.
3. Direct Investing in Local Communities:
In communities throughout Canada, small and medium sized enterprises have received direct equity or debt investment from community based funds. Labour-sponsored funds currently supply 50% of Canada's venture capital. Investments range from the Rocky Mountain Campers Inc. in B.C. to the Naya Spring Water Plant in Quebec. LSIFs alone have saved, maintained or created close to 100,000 jobs in Canada.
