Wednesday, May 02, 2007

Socially responsible investing

A group that opposes the atrocities in Darfur is pressuring investing companies like Berkshire Hathaway into divesting shares in companies that are involved with the country. The problem with this is, of course, that if a profitable stock is shunned by investors, its price drops. Presumably, its profit per share will be constant (that is, the company won't change its actions to comply with its former shareholders), meaning that a profitable stock will now be even more attractive to investors without similar qualms. The more investors who refuse to own the stock for moral reasons, the more immoral investors can profit. This is simple economics.
Does this mean that so-called "socially responsible investing" is a bust? Probably not. We can assume that those who are making these choices are making them on some sort of Kantian basis: they ask themselves whether a world in which everyone invested merely according to profit would be one in which they wished to live, and answer in the negative. But there are other options. One tactic is to use shareholder votes to affect the choices that companies make. Unions, for instance, have been purchasing shares in certain companies in order to force them to improve their business practices. Unfortunately, I suspect this tactic would not work in the present situation because the Chinese company that is engaging in the questionable behavior probably does not afford many decision rights to its shareholders; i.e. because the Chinese economy is insufficiently capitalistic, shareholders do not have the right to tell companies what to do.
Finally, some companies' actions are morally controversial, meaning that there are actual debates as to whether they are right or wrong. Take Caterpillar, for instance: the Episcopal Church and others have taken money out of this fairly successful stock because it sells the bulldozing equipment that Israel uses to destroy Palestinian houses. Supporters of Israel and its actions will presumably have no objection to buying the stock and profiting more from it than they would otherwise. Similarly, those who have no moral issues with vice stocks (alcohol, guns, defense and tobacco) can invest in the extremely successful Vice Fund.
Investors need every tool they can get to beat the market. This is because we can presume that stock prices reflect the decisions of people who have a very strong interest in knowing how their investments perform and who pay a lot of attention to news and upcoming events. Insider trading is so profitable because those who do it have information that others don't; they can beat the market by knowing important events sooner. If socially-responsible investing is prevalent, investors without morals also stand to make a significant amount of cash.
How do we apply this? Find out what companies are being shunned for what reasons. Some of those reasons you probably feel are justified--for instance, the activity in Darfur is unconscionable. What you do with those stocks is a hard question and I think I've outlined reasons for not investing them and the consequences of not investing. But the easiest thing to do is find a stock that is being shunned for reasons with which you disagree . I support the right to produce and consume alcohol and tobacco. If others don't, they can shun the stocks while I invest in them. They will only be helping me, someone with whom they disagree, make a large profit. Thanks, Christians!

Here's an excellent article on the issue by Daniel Gross of Slate. Via that article, here's a chart that puts "The Ave Maria Catholic Values Fund" against The Vice Fund. The upshot: moral investing may be profitable, but vice investing is as well.


Blogger BrookfieldCT said...

We are in a hurry. The hurry is: we humans are in the process of destroying our planet. Global warming is the single most significant environmental crisis the world community has ever seen. The 2007 G8 Summit in Germany will focus on the reversal of global warming. President Bush, of course opposes this proposal. Like his strategy in the Middle East, he has a better idea, and he wants to convince the world of something they already know is untrue. This time it’s not that there are weapons of mass destruction in Iraq, but that global warming is not that dire an issue.

Our Nero-like President fiddles, but we cannot allow our Rome to go up in flames. This isn’t a city’s destruction we speak of. It is the end of all of us, of history, of every thought and feeling humankind ever produced. Our present federal government is not going to do anything about this crisis.

Our company, Connecticut Real Estate and Construction wishes to do something about it, because Connecticut needs workforce housing in significant number for very important reasons. Suburban sprawl is killing the environment. When we continually clear off two acres and more per household to put up large houses, we cut down trees which produce oxygen, we deplete the filtering system for our water, and we make houses which leave a carbon footprint which further opens a hole in the ozone. If we instead build multiple units together and build them with solar photovoltaic cell panels and with geothermal heating and cooling, we leave virtually no carbon footprint, we leave sufficient greenery to filter water run-off, and we provide our workforce with housing that allows them to stay in the state and not flee to the South and Southwest as has been the recent trend. As a result, those businesses (and their tax revenues) which require those workers need not flee with the workforce, a trend we have seen throughout the Northeast region of the country.

Additionally, we will build elderly housing. The Boomer Generation is aging. They are retiring at record rates and require specific housing that does not exist in sufficient number. We will build it. We will build commercial buildings and office space to go along with the elderly and workforce housing. We need cooperation from local governments to achieve our goals, and we need that cooperation quickly. As we move forward, we will build with town tax rolls in mind. We are aware that the workforce housing will require significant services and expenses, most notably educational expenses. This is why mixing the elderly housing with the workforce balances the ledger, for the elderly pay taxes without sending children to schools. Further, the commercial and office buildings will bring in significant tax revenues without pulling out revenues from the local municipality. This formula is referred to as “Smart Growth” and is to be part of our plans.

While proposing “caution” and “care” is never foolhardy advice, studies on these issues have already been done and “smart growth” is necessary throughout the state. We cannot wait. The cost is too dear for all of us to sit idly by and fiddle away time as the planet goes up in flames.


Miles J. Shapiro, Partner
Connecticut Real Estate and Construction
VP Marketing and Commercial Real Estate

12:07 PM  

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