SRI Investing

https://www.sriinvesting.com/blog-sri-investing/giving-to-charity-in-retirement-think-qcd/11/2021

Socially Responsible Investing | SRI Investing | Impact Investing Giving to Charity in Retirement – Think QCD When the 2917 Tax Cuts and Jobs Act raised the standard deduction for taxpayers to $24,000 for couples ($12,000 for singles), and lowered individual tax rates, an ancillary consequence was to reduce the tax benefits of making charitable donations. Fewer taxpayers were itemizing, which means their d

These are surely crazy times, and many of us are experiencing a nagging sense of disorientation about ourselves and the world around us. #2020 continues to be a very unsettling year.

The , which seemed in the to be slowly receding, has found new life in many states, and with the President and much of his inner circle now infected, the status of our already dysfunctional national , not to mention the , is even more unclear and troubling now than ever before.

Most of us are beyond tired of social distancing, foregone vacations and not spending time physically interacting with our friends, children, grandchildren, parents and siblings.

Deep inside, we know that there are many things that need fixing in America in addition to dealing effectively with the pandemic - from the effects of to critical infrastructure needs to the constant horrifying, unexplainable examples of police brutality that show up on cell phone cameras. Meanwhile, the outlook is almost as uncertain as our politics are disturbing.

The point here is not that things are hopeless. investors, simply because we have assets to , are likely among the lucky ones compared with so many others who have lost their jobs or are looking at the possibility of being evicted from their homes. Yet our anxiety is still very real, and it is good to recognize that this is a time to practice some self-compassion. More than ever in recent memory, we need to give ourselves a break, and to reach out to the people we care about. In times like these, we have to lean on each other.

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The Irony of Being an SRI Investor Today

Many of my clients, and investors in general, have been experiencing some cognitive dissonance in recent months during the pandemic. On the one hand, there is relief the markets have rebounded significantly from March’s panicky nosedive. On the other, high unemployment and widespread suffering in many parts of the U.S. are causing anxiety.

In some cases, there is a vague sense of guilt, as in: “I am a person who invests to encourage a more sustainable and vibrant economy that works for everyone. Why should I be doing so well now when so many others are suffering?”

Today, the net worth of American households in the aggregate (largely based on stock market and home prices) is very close to a record high. This compares favorably to the Great Recession of 2008-09, when both housing prices and the stock market fell dramatically at the same time. The housing market then, in particular, took years to recover, while homeowners struggled with maintaining their debt payments or lost their homes altogether.
The situation appears to be different in 2020. The stock market is being anchored by the world’s largest companies – , , , (Google), and * - companies that continue to prosper during the given widespread shelter in place recommendations and much less travel. Reflecting on the businesses these companies are in, the reasons for this seem obvious. Meanwhile, the industries that are suffering much more – hospitality, airlines, restaurants, and in person services – constitute a much smaller share of the market as measured by market capitalization. Millions of struggling small businesses are not represented at all.

The good news...

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The continues to tick upward, having completed a very strong August, this in the face of a continuing , very high unemployment, and widespread economic suffering. The media pundits are predicting doom from all angles……

The market is about to swoon again, and this time it will stay down. Lost jobs will never be restored. Negative interest rates are destroying your chance to save. The billionaires are buying . The banks are going under. One article I read recently attributes the following quote to Warren Buffet: “The U.S. debt isn’t going to be repaid; it’s going to be refunded……. you better own something other than debt.”

If you read too much of this, you might well conclude it’s time to convert all of your assets to cash and bury it somewhere safe. But wait, that won’t work either, because the coming runaway due to the Fed’s printing of money to pay the U.S. debt will soon make your worthless. And on it goes.

But let’s slow down and take a deep . Let’s talk about value for a bit. What is it that creates ? When people employ the earth’s resources and their own talents and creativity to make and offer products and services that are needed and useful to other people, value is created and enhanced. Humanity improves its lot as more people live better lives. Good businesses – , successful, profitable businesses – deliver on this while providing jobs for millions. They create and enhance economic value in society, and in the process, enhance their own value. They are good investments.

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As a financial advisor specializing in SRI, and as an SRI investor myself, I’ve been having some nagging thoughts of late. While I’m seeing a resilient stock market limit my pain as an investor, I’m troubled by the economic damage the pandemic continues to reap in the U.S. and the violence and civil unrest that is accompanying it. At its core, I’m troubled by the growing economic inequality in this country.

The has resulted in an downturn that is particularly damaging to the poor, to people of color, and to all who are on the lower end of job pay scales. A significant portion of the workforce that undergirds our country’s economy is in the low wage service sector. Many are essential workers - home care aides, personal care aides, people who clean our offices, agricultural workers, and those who are making deliveries. Many non-essential service workers are , while many of the essential workers are not making a living wage. Most often, they cannot work from home, and might even have to take their kids to work with them when schools are not in session. These things make them and their families even more vulnerable to COVID-19. Stimulus payments from the are helping in the short run, but the pandemic is highlighting just how vulnerable these people are, financially and health-wise.

SRI’s vision is to help create an economy that works for everyone, and it is making significant contributions to that better world. SRI favors and encourages companies that treat their labor forces fairly and without , that resist doing with vendors and others with poor human rights records.....

Yet, inequality continues to grow. Today, the top 1% financially in the U.S. pull in 20% of the total income in the country – the bottom half, only 13%. Inequality in the U.S. rivals the worst among economically developed nations. The top 10% of households own 84% of the U.S. stock market. As SRI investors, most of us are in this top 10%. And so, my nagging thought – when it comes to addressing the issue of inequality, is SRI enough?

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I’ve referred several times recently to the mainstreaming of SRI. Suddenly, it appears everyone is doing it. That certainly hasn’t always been the case. Indeed, a look back at the modern history of SRI demonstrates just how far we, and I, have come.

Early and Modern Beginnings
The modern SRI movement arguably began about 50 years ago in the U.S. Yet, its foundation was laid down gradually through prior decades, even centuries, mostly by various religious groups. For example, in the late 1700’s John Wesley, the founder of the Methodist Church, rode horseback all over the English countryside preaching a critique of Adam Smith’s best-selling The of Nations. In particular, Wesley sought to debunk Smith’s contention that seeking one’s individual economic good results naturally in the common good. Early in the 19th century, as Wesley’s Methodist Church took root in the United States, it took an anti-slavery position long before the Civil War.

The Mennonites and Quakers have been known throughout their histories as peace churches whose members shunned doing with arms makers and those otherwise participating in war. In the early 20th century, various church organizations were among the first to support the early labor movement in the U.S., and many also avoided businesses that manufactured or sold alcohol, to***co, gambling and po*******hy.

In 1971, Pax World launched the first SRI mutual fund. Pax was founded by two Methodist ministers, Luther Tyson and Jack Corbett – one of the new fund’s primary mandates was to avoid companies that were contributing to the Vietnam War.

Then, in 1977, the Rev. Leon Sullivan, a prominent civil rights leader, formulated an investors’ code of conduct that became known as the Sullivan Principles. The Sullivan Principles became integral to a broad movement to divest from public corporations then doing business with the segregationist apartheid government of South Africa, and to reinvest in companies exhibiting better corporate responsibility on a wider range of criteria.

My story: In 1980, I was a young and a member of a Protestant church located in Rocky Hill, CT, just south of Hartford. I became the Treasurer of that church and was sitting in a finance committee meeting one day when an older woman on the committee suggested we should be paying attention to that “South Africa thing.” I had never heard of at that time, and indeed, “socially responsible investing” was still a brand new term. But we listened to our wise committee member and, after a good deal of searching, found a financial advisor in Hartford who helped the church divest its portfolio of those apartheid abetting corporations.

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I came of age in the 1960’s when the country’s internal struggles with and war making often resulted in demonstrations and violence in the streets. Seeing the same struggles, demonstrations, and violence today is an extremely disheartening reminder of that earlier decade when John Kennedy, Robert Kennedy, and Martin Luther King were assassinated, while hundreds of nameless demonstrators were also killed or injured. The latest demonstrations across America can only make us wonder if we as a country will ever effectively address the underlying issues of racism and discrimination being brought (yet again) to our collective attention.
Police violence is a particularly destructive example of our national racism. There have been many cell phone recordings in the past few years showing examples of racial profiling, and of bigoted white individuals trying to call the police on black individuals with made up tales of assault. Without the video evidence that there was no wrongdoing, these black individuals would no doubt have been prosecuted—and one wonders how many have been over the years without this exculpatory evidence of their innocence.

Of course, not all police officers are violent or racist. We have also seen police officers and police chiefs marching with the demonstrators and condemning the blatant murder of George Floyd in Minneapolis. Yet, racial profiling and police violence are all too commonplace. The current violence and public anger will die down eventually, but if root causes are not addressed, they will continue to simmer and erupt periodically.
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What happens when your portfolio is built around and compassion? Such portfolios focus on companies that build their businesses not simply around immediate, short- term profit, but rather with an integrated focus on customer satisfaction and experience, employee training and morale, good relationships in the community, and a more positive impact on the environment. This prioritizes well managed companies in innovative technology, patient-focused health care, transparent and efficient financial services, and renewable energy.
The result? SRI/ESG portfolios have always performed well under all market conditions, and particularly when the markets are weak - and especially during the current pandemic. Morningstar, Blackrock, Invesco, and Allianz are all reporting that funds focused on and are outperforming their non-SRI counterparts in 2020, as well as having outperformed during the lesser downturns from 2015 to 2018.

Of course, the SRI professional community has argued for decades this would ultimately be the case. In a world with an integrated global economy that has had a progressively more negative impact on the environment (pollution, climate change, virulent disease), it is simply common sense that companies that are positioned to help mitigate these factors will become progressively more valuable in the future, and portfolios that focus on these companies will perform better.
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