What’s The Limits Of Socially Responsible Investing?

Transient

The reality is that, as investors, we make money from the success of American and international businesses. When Walmart sells groceries, investors benefit. When McDonald’s sells a Big Mac, investors benefit.

The effect of one sale is marginal. The effect of millions of sales leads to quarterly profits, which lead to dividends, and hopefully appreciation in a company’s stock.

But where should investors draw the line? At what point should investors question their benefit from the growth of a business or industry because the effect on humanity is questionable?

Profits vs. Conscience

Recently, we were all reminded of the devastating effects of firearms. The school shooting in Connecticut was nothing more than a tragedy. People were reminded that guns can be used for evil just as they can be used for good.

Investors are now divesting themselves from firearms companies. One private equity firm, Cerberus, announced that it would divest itself from Freedom Group, a company which made one of the firearms used in the recent shooting. Investors in the firm’s funds, which include unions, private investors, and global financial firms, have applauded the move.

On Wall Street, investors have also sold off popular gun stocks like Sturm, Ruger & Company (RGR) and Smith & Wesson Holding Corporation (SWHC), which are off 14.5% and 20%, respectively since the most recent shooting. While some investors are simply worried about new gun control measures, others simply cannot justify to themselves the idea of profiting from products that result in negative externalities.

Socially Responsible Investing: What Makes the Cut?

I’m interested in hearing your thoughts on which companies you are willing to invest in, and which you are not. Some other controversial industries include:

  • Private prisons – Are you willing to make money when more people spend more time locked up?

  • Alcohol companies – Millions of people responsibly enjoy alcohol, but many use it recklessly and dangerously, hurting themselves and others.

  • Casinos – Casinos make billions of dollars each year, which comes from fun-loving tourists and addicted gamblers alike. Are casinos an investment you can justify?

  • Tobacco Companies – One of the best performing stocks of all time, Altria, makes a product that ultimately leads to shorter life expectancies for those who use it.

  • Toxic Industry – Big industry leads to pollution. You can include any number of companies here – oil refiners and exploration companies, manufacturers, chemical producers, etc.

One could make the case that many of the best-performing publicly-traded companies make billions of dollars for themselves and their investors by creating negative outcomes.

Just think about companies like Monsanto, Exxon Mobil, and more.

All of the above companies are excluded from most socially responsible funds and typically trade at a discount because they are so-called “sin stocks,” companies that benefit from negative outcomes in one way or another.

Question is; where do you draw the line? Are there any industries or companies that you simply cannot invest in because you don’t like what their businesses do or how their products affect society as a whole?