The Long and Short of Socially Responsible Investing
With the rise of companies engaging in socially and environmentally responsible business practices—fair trade partnerships, living wages for all workers, utilizing sustainable manufacturing and harvesting practices to name a few—debates have risen about what impact our investing strategies have. Is it just as good to invest in a company that donates a little bit of profit to charities every year as it is to choose a company intent on growing their triple bottom line? (Triple bottom line companies focus on financial, environmental, and social outcomes.) Are there short or long-term benefits to one over the other?
Let’s look at two supermarket chains as an example. Ingles Markets provides $1000 scholarships to high school graduates who are employees or children of employees at any of their stores. This can be called an investment in the next generation, ensuring a means to a college education for young people who may not otherwise have the assets for tuition and housing. It fosters goodwill in every city where an Ingles Market is located, which prompts investment in the chain with investors knowing their money supports a company that’s interested in the future. But is awarding scholarships, or donating a portion of profits to local or national charities, the best the chain can do?
In the short-term, such investment in a company like Ingles Markets has a positive impact, but some argue it isn’t enough. In contrast, the Whole Foods Market chain strives to forge partnerships with suppliers in poor third world countries to facilitate fair trade and sustainable farming practices while bringing nutritious foods to underserved portions of the US. This is more than a profit making decision. It’s a boost to the company’s core values by widening their influence for the benefit of populations who need the most help. While it sometimes does make the products in Whole Foods Markets more expensive for the consumer, the chain’s success over the last decade proves sustainable practices that grow a company’s triple bottom line are attractive to consumers and investors alike.
The winds of change have driven many companies to behave in a more responsible manner, not just for their financial growth, but also for the benefit of the environment and society as a whole. Investment in socially and environmentally responsible companies is on the rise, currently a $20 trillion dollar industry. Studies have shown companies that cared about social and environmental responsibility had better operational efficiency, lower cost of capital, and better stock price performance.
Can a company that doles out scholarships or charitable donations compete with companies that reach farther and wider in their fair trade, sustainable, and environmentally conscious efforts?
Investing in companies that understand the value of giving to the communities in which they do business is not a bad choice if you’re looking for short-term impact. But for how long will that strategy remain competitive? As the emphasis on the worldwide impact of business rises, triple-bottom-line companies can convince investors they’re in it for the long haul, and not just for the next generation, but the ones that follow.