Is It Really That Bad???

We replied to a RFP (request for proposal) back in February to manage an investment portfolio for an environmental non-profit. Now we don't do a lot of institutional work, but that type of clientele has been increasing over the past several years as more and more organizations understand the importance of responsible investing and shift to fossil fuel free portfolios..

We put in several hours on the proposal, like we would do for any prospective client, laying out our investment philosophy, historic returns, client communications, etc. I was really happy with the package that my team put together.

When the day came to present, we were on it - I felt we really hit it off with the individuals in the room who were very much aligned with us from a values perspective. We spoke each other's language.

Now I've learned over the years the philosophy of high intention, low attachment - basically, do the best you can and then let go. Don't be attached to the outcome. If it is going to happen, it's going to happen.

Well, it didn't happen.

It's not the first time we didn't get the account and it's not the last time we won't get the account. Sometimes it's just not a match and I'm comfortable with that.

This time was different for me, though. I learned that the organization had decided to use Vanguard as their investment solution which told me that they were probably only focused on fees and passive investing. This meant that they chose to not invest responsibly, in alignment with the organization's mission.

I found myself judging these folks and I hated doing so. So I asked myself the question "Is it really that bad to invest traditionally?" The answer that keeps coming into my head is Yes.

Passively investing in indexes includes investments in fossil fuels, mining, chemicals, tobacco, defense contractors, weapons and agri-business. It includes these industries because by indexing, the strategy is simply to buy the entire market, everything included. There are no values judgments made.

Even if the organization decided to use Vanguard's FTSE Social Index Fund they would still end up owning names such as ConocoPhilips, Kinder Morgan, Newmont Mining and Conagra according to Morningstar Direct.

So is it really that bad? Yes. 

It is so important to align your investments with your values. Is it right if an organization is soliciting donations and they then invest that money in companies that are working in opposition to the organization's mission? If you're working for social justice, should you invest in companies exploiting foreign workers? If you're working for clean air or water, should you invest in mining or chemical companies? If you're mission is fighting climate change should you invest in fossil fuels?

And these questions aren't just for institutions and non-profits - they can be asked by individuals too. Are you marching for gun control but owning gun manufacturers in your index fund? What is personally important to you?

So is it really that bad? Yes.

I'll admit I'm a purist when it comes to this. But, I'd rather be a purist than an apologist.