by Thomas Kostigen
Wanna protest with your money? Socially responsible investing can trace part of its roots to a protest movement — anti-apartheid— and investors today can leverage their capital in similar ways to ensure their investments are aligned with racial justice.
“From 1985 to 1990, over 200 U.S. companies cut all ties with South Africa, resulting in a loss of $1 billion in direct American investment. South Africa was ravaged by capital flight as businesses, investors, and money left the country. The rand, South Africa’s currency, was significantly devalued and inflation reached double digits. The economic situation, as well as the resistance efforts of those suffering under apartheid, meant South Africa’s system had to come to an end,” explains Investopedia.
It should be noted that the divestment movement began on college campuses. Students participated in widespread protests and led marches against apartheid (segregation and discrimination based on race) in South Africa. Students also thought of ways to raise attention to the issue through campaigns and, eventually, divestment tactics. They pressed their colleges’ and universities’ endowment funds, which control billions of dollars, to divest of the stocks of companies that had operations and/or business in South Africa. The tactic, as we all know, worked.
Since, divestment has been used as a form of financial protest in other countries, such as Sudan, Iran, and Syria, as well as business sectors, such as tobacco.
Socially responsible investments amount to more than $12 trillion in the United States alone, according to the Forum for Sustainable and Responsible Investment. Mutual funds account for the largest share of this capital, with more than 600 funds claiming that they invest in a socially responsible manner. That means individual investors can express their social wants and wills in the stock market through mutual funds. Additionally, there are separately managed accounts that can invest according to investors’ wishes, as well as institutional funds that can influence social forces via employees’ retirement accounts.
To be sure, not only SRI funds address all social ills and problems. And there can unwanted effects of divestments. For example, in South Africa many disenfranchised workers were affected by the divestitures. “Corporations provide jobs and income, and in a country with high unemployment and low wages, any jobs help. Further, many American-owned companies had policies in place, ensuring that South Africans of all races would work under fair employment conditions and receive equal pay. If these companies pulled out of the country, how could the poor and oppressed hope to improve their lives?,” Investopedia explained.
It’s these affected issues that also need scrutinizing when weaponizing capital. Financial advisors can certainly help present to the pros and cons of investing and divesting—showcasing causes helped and potential negative consequences. Green America is one of many organizations that provides a listing of financial advisors who specialize in SRI. Of course trade organizations, such as the Financial Planning Association, NAPFA, the CFP, US SIF and others also provide directories of specialists in this area. Individual investors can use services such as MSCI, Bloomberg, Yahoo Finance, or even do their own rating and assessments of corporate missions and whether they take into account race, gender, and other social considerations.
As people — rightly — take to the streets to protest, it should also be remembered that they can also call upon capital to make change.
Thomas Kostigen is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Thomas is a best-selling author and longtime journalist who writes about environmental, social, and governance issues.