Working Capital – Continued

Community Investing

While stock screening and shareholder activism are directed toward large corporations, community investing is about funding worthwhile projects and supporting individuals—in some ways making this the most inspiring form of SRI.

Consider the story of David Royster, 40, who lives in Chicago"s South Shore neighborhood, the once-deteriorating community where South Shore Bank is located. "When I first moved here, there were a lot of abandoned buildings," he says. But in recent years—with the help of loans from South Shore Bank—he has almost single-handedly revitalized the 7100 block of Merrill Avenue. "There was gang activity and drugs in those buildings," he says. "I bought the buildings and rehabbed them one by one. Now the whole block is safe and beautiful." And along the way, Royster formed his own construction company, providing plenty of employment for locals. As with most good news, this brings other positive residual benefits: instead of urban flight, which adds to suburban sprawl and the accompanying burden put on ecosystems, Royster has essentially recycled buildings while also reducing the need for cars.

Loans on an even smaller scale than Royster"s can also have an enormous impact. In 1974, Muhammad Yunnus, an economics professor at Chittagond University in Bangladesh, met a struggling yet talented young furniture maker. She was literally starving, because in order to buy her raw materials she needed to borrow money from a usurious money lender—who was charging the equivalent of 10 percent interest a day.

Professor Yunnus lent the women a few dollars to free her from that burden. Within a few months she paid the loan back and Grameen Bank was born. Since then, Grameen has loaned out billions of dollars (significant amounts used to finance small-scale appropriate technology that encourages self-reliance and improved efficiency, which is typically human powered), grown to more than 1,100 branches, and has more than two million members. Borrowers don"t need collateral to get a loan, but they do need to be part of a small group that guarantees each other"s loans. The repayment rate is an impressive 97 percent.

Since Grameen formed more than 25 years ago, many other like-minded microlending institutions have sprouted, including dozens in the U.S. For eco-minded investors also interested in helping those in difficult economic circumstances, Self-Help Credit Union in Durham, North Carolina offers an appealing program that creates ownership and good opportunities for minorities and low-income families who have environmentally friendly businesses.

For instance, Self-Help loaned money for buying equipment to R24 Lumber company, a minority-owned business that remanufactures discarded wood into useable wall studs. Other banks with a strong or exclusive focus on loaning money to environmentally oriented businesses or nonprofits include Shorebank Pacific in Washington, Chittenden Bank"s Socially Responsible Division in Vermont, Permaculture Credit Union in New Mexico and Wainright Bank in Massachusetts.

While most community investing is done through banks and credit unions, there are also loan funds and trusts. Interest rates can be market level or below, with the choice often at the discretion of the borrower. And because risk is pooled, these tend to be safe investments. They"re akin to buying a certificate of deposit, with the added benefit of knowing your money is being put to use making the world better. To invest in a variety of loan funds at once, the Calvert Social Investment Foundation (a nonprofit organization independent of Calvert Funds) offers professionally managed notes (debt instruments).

One of the wonderful things about community investing is that almost anyone can participate. All you need is a checking or savings account to put your money into deserving hands. Yet, despite this relatively easy access, the biggest problem with community investing is that not enough investors do it. To quote the SIF 2003 survey again, only two-thirds of one percent—or $14 billion of the $2.1 trillion invested by socially conscious investors—is in community investing. To boost this important sector, SIF and Co-op America have developed an initiative to get one percent of SRI assets into community development financial institutions (CDFIs) over the next few years. Given the success of their efforts so far, it"s likely they"ll make that goal. Between 2001 and 2003, community-investing assets grew by an impressive 84 percent.

To help support this effort, SIF has developed a community investing logo (a half-circle of human figures holding hands, connected to a house) that identifies its members with at least one percent of managed assets in community investments. Consider adding this as a criterion when selecting your investments. It"s another way to use your dollars to help push the SRI community to make more of a real difference.

The Next Step

While it"s nice to linger over victories, with so much work to be done it seems more important to ask: how can SRI successes be repeated and multiplied? Is there a way to consistently steer large corporations toward sustainability and more enlightened behavior? After all, even if dozens of big businesses have signed on to the CERES principles, that leaves many thousands of public corporations which have not. So while Home Depot moves toward greater environmental awareness, Boise Cascade and Georgia Pacific continue to mow down ancient forests (or buy from suppliers who do) in Indonesia, British Columbia, Russia and Oregon. While environmentalists cheered when Ford abandoned the Global Climate Coalition, the company continues to make the four-ton, 19-foot-long Excursion sport utility vehicle, which spews as much global warming pollution as two average cars. And while GM has signed the CERES Principles, it still lobbies to fight tighter pollution-emission standards for cars. These issues point to problems interwoven into our financial system.

Consider Enron—not as the poster child of corporate misdeeds—but to look at the atmosphere that helped create its implosion. By looking at the forces that allowed the Enron scandal to happen, we can better understand the challenges social investors or any economic tide-turners face.

Before its collapse, Enron was considered a model socially responsible company, and its stock was in many SRI mutual funds when it went down. As professor Sandra Waddock of Boston College Carroll School of Management noted in her article "Fluff is Not Enough," Enron rang all the bells of corporate social responsibility. It won a spot for three years on the list of the 100 Best Companies to Work for in America. In 2000 it received six environmental awards. It issued a triple bottom line report. It had great policies on climate change and human rights, and even had strong anti-corruption guidelines. Its CEO gave speeches at ethics conferences and put together a statement of values emphasizing "communication, respect and integrity."

Enron fooled us. But that"s not the real point here. The point is that all the things SRI has been measuring and screening for and applauding miss something fundamental going on inside companies—and that something is the unremitting pressure to get the numbers by any means possible. The biggest difficulty SRI face

s is that it operates on an unspoken assumption that managers have genuine freedom to be socially responsible. But in many cases, they don"t. Can Ford"s CEO really stop manufacturing SUVs if those vehicles are generating huge profits? As the company"s financial caretaker, that would be a breach of his fiduciary responsibilities.

From the beginning, SRI has been about separating the good guys from the bad guys. It"s operated on the belief that the white hats can be spotted by their exemplary policies and programs and sustainability reports. But the lessons of Enron tell a different story.

Enron and other corporate scandals point to system-wide pressure. It"s not about good companies vs. bad companies, but about the pressures that act on all public companies. The focus in SRI has been on encouraging companies to voluntarily undertake responsible moves. But the pressure to get the numbers is not voluntary. And that pressure comes from many sources.

Pressures built within the structure of companies often start from the top, with financial incentives for executives that tend to be based on increasing short-term earnings—a motivator that often works against the environment (since the initial costs of eliminating toxics generally hurt the bottom line), not to mention the long-term health of the company. Corporate boards rarely serve as an antidote to this lack of vision since corporations don"t choose directorates via real elections. The result is management-selected yes-men and no employee representation (and not even a way for them to run). At bottom, there"s the design of financial statements, which leaves nowhere to account for "externalities" such as environmental effects, making them invisible.

Then there are pressures from state laws, which often say corporate directors must maximize the bottom line—so when it comes to choosing between spending on cleaning up the Housatonic River or fattening earnings, directors feel their legal obligation to the company financials.

But most of all, it comes from an entrenched and antiquated system of taxation; one that derives most of its revenue from taxing profits and income (which we should be trying to encourage) instead of negatives like pollution. If carbon emissions were taxed, for instance, businesses would quickly figure out clever ways to use less oil, gas and coal. And if companies paid Uncle Sam based, at least partly, on their waste and toxic releases, no doubt they"d reduce their ecological footprint. Capitalism can work brilliantly; it just needs some tinkering.

Addressing these sorts of issues has traditionally been beyond the scope of the SRI community—and understandably so, given such issues tend to be better suited to think tanks and grassroots social change organizations. Yet, if the SRI industry hopes to truly live up to its promise, in some fashion, it needs to work on the big picture, perhaps working in conjunction with nonprofit groups that can focus on system design issues.

There are even a few places where this is already happening. The Corporate Sunshine Working Group, for example, is an alliance of investors, environmental organizations, unions and public interest groups working to enforce and expand SEC corporate social and environmental disclosure requirements. The Global Reporting Initiative is a coalition of businesses, nonprofits and government agencies working to set uniform, globally applicable standards that measure environmental impact.

To support such efforts, SRI money managers could allocate a small percentage of their fees or levy a tiny "tax" on their clients" assets, earmarking those monies for nonprofits that work at a structural level, such as Redefining Progress, an economic policy and advocacy group. Just as the Social Investment Forum has a campaign to encourage investors to devote at least one percent of their assets to community investing, there could be a .5 percent or at least a very modest .1 percent campaign to support organizations working on systemic change. Even a very small percentage of SRI assets devoted to improving our tax system could make a big difference and build vital momentum. If nothing else, SRI money managers and organizations could help spread the word, letting their clients know we"re facing problems larger than just where you put your money. That doesn"t suggest current SRI practices should be abandoned, only that they need to be expanded and put in perspective.

A good place to begin a conceptual shift is by reconsidering SRI"s three-legged stool analogy. Instead of a stool, we’d like to suggest that a more appropriate image is a three-pronged fork. At this point, not all of the prongs are the same size or strength. Shareholder activism and community investing could be larger, stronger and sharper—allowing social investors to wield a tool that works more like a pitchfork than a dinner utensil.

Using the imagery of a fork-shaped tool helps us remember that to get results, ethical investors must continue prodding away. It also helps keep the big issues in mind: it"s a reminder that aspects of the economy act like an untamed beast that needs poking in the right direction. For those parts of the economy that are effective and humane, the fork can be used to keep it properly fed. And last, seeing SRI"s current tactics not as a container/support, but as a tool, helps remind us that we"ll need other equipment to do a big job.

It"s time for the SRI community to ask itself, "Are the vehicles we"ve used for the last three decades, such as screening, still the best tools for making companies more responsible? Given the sophistication SRI has gained over the years, and the clout it has, are there more effective or supplemental ways to accomplish the goal of making corporations accountable?"

The SRI business now has a good opportunity. The one upside of the Enron and other corporate scandals is that they"ve brought public awareness to a big problem. Combine that with the fact that many SRI founders are still alive, still running companies, and still looked to for leadership, and you can see the time is ripe. It wouldn"t take that many voices speaking in unison to bolster SRI"s power. Social investors have accomplished a lot in their 30-plus years. And, perhaps most important, they"ve laid the groundwork for the possibility of fundamental, lasting economic change. It may be that their most important work is yet to come.

MARSHALL GLICKMAN is editor of Green Living, an environmental journal published from Williamsville, VT and the author of The Mindful Money Guide (Ballantine).

MARJORIE KELLY is co-founder and publisher of Minneapolis-based Business Ethics: Corporate Responsibility Report (, and author of The Divine Right of Capital: Dethroning the Corporate Aristocracy (Berrett-Koehler Publishers).

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