Socially Responsible Investing

This week I would like to take a break from a discussion of Fratelli Tutti, to discuss “Journeying for the care of our common home: Five Years After Laudato Si”. This 227-page Vatican document that I first wrote about back in August has finally been translated into English. (Note that back in August, the title was then loosely translated to “On the path to caring for our common home”.)

Journeying for the care of our common home turns the teachings of Laudato Si into a call to action to address the ecological crisis of climate change. In the Finance chapter of  the document, Pope Francis urges us to use our investments for good:

Investors can encourage positive changes in various sectors of the economy. This is the case when they decide not to invest in companies that fail to meet certain standards (human rights, child labour, environmental and so forth).

He goes on to specifically suggest divestment from fossil-fuel companies:

Promote responsible investments in social and environmental sectors, for example by evaluating progressive disinvestment from the fossil-fuel sector.

This means making your retirement and other investments align with your values and divesting from any assets that support activities that you can’t support. For Suzanna and I that means avoiding investments that support arms production, prisons, animal agriculture, fossil fuel extraction (e.g., oil, coal, and natural gas companies), or companies that are heavy users of fossil fuels or big polluters (e.g., companies producing plastic or involved in the destruction of the rainforests).

It’s time to call your financial advisor or investment broker and tell them you wish to divest of fossil fuel and other socially irresponsible investments. Be prepared for the possibility that your broker will try to talk you out of your decision; it is important that you be clear and resolute. 

Some things I have learned in my work on divestment (but please realize I am not a financial advisor):

• There is a whole sector of the investment world concerning sustainable or values-based investing, but it still represents a small portion of the investment universe with limited choices. 
• ESG (Environmental, Social and Governance) screened funds can be useful, but the screening process may still not align with your values so read the fine print and make sure you scroll to the bottom and examine the list of their holdings. For example, the TIAA-CREF Social Choice Equity Fund currently owns stock in Chevron.
• There are a number of “green” or “clean energy” funds which may make a good choice. 
• You may be able to exert greater control over funds by establishing what is referred to as a separately managed account (SMA), but the minimum investment in SMAs tends to be quite high, starting at $100,000 or higher.
• Another strategy would be to shun funds altogether and invest directly in stocks and bonds of organizations supporting clean energy and other socially positive companies (e.g., electric cars, solar power, etc). This strategy, however, may come with extra risk, including lack of appropriate diversification.
• Avoid indexed funds or target-date funds since, in general, they do not apply any screens.
• If you sell any assets that are in non-tax-deferred accounts, come April, you will owe taxes on any gains in value since they were purchased. Plan accordingly. 

Read Chapter 8 of “Journeying for the care of our common home” yourself. You can download it  from https://www.laudatosi.org/laudato-si/good-practise/holy-see-vatican-city. 

Working together, we can help take care of our common home. 
Paul Litwin