Traditionally, most people have invested purely in search of profits. If you wanted to make a difference in the community, you would do that through your gifting.
This resulted in a compartmentalized approach which essentially divided financial intentions into two buckets — one for investing and one for charitable giving. This approach means you are seeking to achieve a financial return with a strategy of traditional investing and a social return through philanthropy.
The problem with this approach is that it ignores a fundamental reality. All businesses have a social return. The only question is whether it is a positive or negative one. Are the underlying companies you invest in — through stocks, bonds, and mutual funds — creating value or extracting value?
Perhaps the easiest way to understand the problem with a compartmentalized approach toward investing is to consider the example of charitable accounts. Even if you don’t have a charitable account (i.e., a charitable trust, donor advised fund, private foundation, etc.), imagine a pool of money that is set aside for gifting purposes in which 5 percent of the balance is given away to charitable causes every year. The key question to consider is what about the other 95 percent?
In other words, what types of companies and business practices are you supporting through your direct investments within that charitable account? Are the underlying investments aligned with the causes you are supporting with your gifting?
If you don’t intentionally incorporate some sort of social values screen, it is almost certain you own companies that are actually undermining the causes you are supporting with your gifting. Here are a few hypothetical examples:
—Gifting to organizations that promote the well-being of disadvantaged children while investing in tobacco companies that are actively promoting the sale of an addictive drug to young children in developing countries.
—Gifting to causes concerned with environmental conservation and sustainable farming practices while investing in companies that derive profits from agribusiness, pesticides, and fast food.
It is not difficult to imagine many, many more examples. The solution is to redefine “the bottom line” you are trying to achieve with investing. If you are no longer singularly concerned with financial returns but also social returns, then you are taking a “double-bottom line” approach toward investing and magnifying the social impact on the causes you care about.
Approximately 75 percent of investors under age 40 now say the social and environmental impact of the companies they invest in is important to their decision making. The same is true for 45 percent of investors age 60 or older. This is a positive trend, and the question for us is: As followers of Jesus, how should we think about investing?
Join me and Denver Institute for Faith & Work on June 8 for “Stocks, Bonds & Mutual Funds: How Theology Can Renew Personal Investing and Financial Planning.” As a panelist at this public forum, I’ll address how Christians can be faithful to our beliefs through a double-bottom line approach toward investing which integrates values into the investment selection process.
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This post was published May 4, 2016
Chad Hamilton is a Certified Financial Planner and a Chartered Advisor in Philanthropy with 18 years of experience in the wealth management industry and author of the book Deep Wealth. He trains financial advisors on best practices for growing their businesses and delivering specialized advice. Chad lives in Denver, Colorado, with his wife and three children.