Our financial pundit addresses the challenges and opportunities of supporting good in the marketplace and surveys growing trends toward ethical capital
“AUM, AUM, AUM!” YES, WE DO OUR JAPA each morning, but here we are chanting the investment-industry acronym AUM, which stands for Assets Under Management. Ask an investment manager what his AUM is and he will give you a number, not a mantra. Let’s think about AUM for Hindus. To develop personal integrity, we want to integrate our life, to align our daily activities with our ideals. Yes? Shouldn’t we do the same with our investments? More and more investors are saying yes, and are choosing to invest so that their capital promotes goodness in the world.
In the investment world, this trend was first called SRI, socially responsible investing; and some mutual funds are devoted to this idea. SRI is a broad term which includes company ethics, environmental issues and human rights.
History of Ethical Investing
In American colonial times, some religious groups proscribed their endowments from investing in the slave trade (more about investments in the slave trade later in this article). The Quakers refused to invest in the slave trade or alcohol. In 1851, when the American Temperance Society was at its height, there were 8,000 chapters comprised of people who pledged to abstain from distilled alcohol. Civic, business and religious leaders who were members in Hartford, Connecticut, formed the American Temperance Life Insurance Company, which only wrote policies for teetotalers. The company prospered. It insured Abraham Lincoln’s life in 1865. Along the way, the name changed to Phoenix Life and was eventually listed on the NY stock exchange, and I invested. In 2016, Nassau Reinsurance Group offered to buy our shares for a healthy premium, and we sold to them.
In 1921, Pioneer Funds were the first mutual funds to avoid tobacco, gambling and alcohol investments. In the 1960s, they expanded their prohibitions to accommodate the civil rights, environment and anti-war movements. In the 1970s, the concept of socially responsible investment (SRI) expanded to prohibit investment in companies doing business in apartheid South Africa. By 1995, there were almost 60 SRI funds, with total assets of $640 billion.
The nomenclature evolved, too. The term used by institutional investors is now ESG, which stands for “environment, social, governance.” In 2006, this was made formal by the United Nations when it announced the Principles for Responsible Investment (PRI). One can join this organization for a substantial annual fee and debate their six aspirational and voluntary principles.
More specific are the SRI Standards, which provide a detailed template for companies to report their adherence to ESG principles. Not every company that touts itself as ESG compliant really is so, and a low quality of data is being reported even by ESG-focused companies. Consistent standards and reporting methods don’t exist, so it is difficult for investors to compare these funds accurately.
There was a recent tempest in the ESG world. Last summer, mutual-fund behemoth Vanguard confessed that two of their ESG funds had 31 investments in oil, weapons and other non-ESG compliant companies. One analyst dubbed it “greenwashing.” They have since sold those investments and promised not to allow that again. On the other hand, Blackrock Funds have invested billions with meat processors and companies that burn Brazilian forests.
Extraordinary visionaries have espoused ESG goals. Even in early interviews with Steve Jobs, he articulated his vision to not just create a company that sells products, but one that will revolutionize the world. And he did that with computers. Was it luck? Apparently not, because he revolutionized three more industries: music, animation and cell phones. I recall sharing a vegetarian lunch with Jobs at London’s Savoy Hotel. He showed a 12-minute clip of his new movie, Toy Story, to promote his 1995 Pixar IPO. As HINDUISM TODAY reported, Jobs had once pilgrimaged to India, meditated, was a vegetarian and promoted dharmic ideals. Oh, and by the way, he kept Apple debt-free during his reign.
How big is ESG today? Swami Venkataraman, Senior Vice President in charge of developing ESG analytical tools for the famous Wall Street bond rating service, Moody’s, told me that “over $12 trillion in the US was invested according to some form of sustainable or ethical or socially responsible strategy, commonly called ESG or Environmental, Social and Governance.”
Of course, even if a company is ESG-compliant, it may not be a profitable business model. As fiduciaries, investment stewards are legally responsible to exercise care, loyalty and responsibility to clients, while exerting best efforts toward portfolio growth. So ESG is only the first screen in the decision process. There is progress, though. In 2015, the UN ratified 17 sustainable development goals and 169 targets. As is often the case, Wikipedia explains them best: bit.ly/WikipediaSRI.
Avoiding evil is a passive form of ESG. Some investors actively invest to gain board seats to steer companies to more responsible business practices. These activists may invest in companies with poor ESG records, since their goal is to make change. I interviewed a retired CalPERS fund manager, Diloshini Seneviratne. She told me “ESG is a huge mandate for CalPERS,” and they have a 21-point ESG risk factor checklist to rank their outside managers. CalPERS is the largest pension fund in the US, with $336 billion in AUM. They have committees which screen to avoid socially reprehensible companies. Though they don’t sit on company boards, CalPERS is a leader in activist investing to ensure that managers implement ESG principles. They created the Sustainable Investment Research Library (SIRI), a searchable database of 1,200 academic papers on ESG topics.
Is oil ESG-compliant? Even the Rockefeller Foundation has divested from petro-based energy companies, a major milestone since their ancestor, John D. Rockefeller, made his fortune in oil. But ESG investing is relative. Few know that the discovery of oil, gas and coal saved the world’s forests during the industrial revolution. After the steam engine was invented, factories needed fuel to heat the boilers, so they cut down forests. Destruction of England’s forests was well underway when oil, gas and coal were discovered and subsequently used to run the engines of the industrial revolution. The world’s forests were saved by coal and oil.
We use these natural energy products every day of our lives, produced by mother nature over hundreds of millions of years from plants, sunlight and gravity. Oil is literally ancient solar energy. From energy products we get asphalt for our roads, as well as efficient sources of power, electricity, transportation and aviation. Nothing else has ever come close in energy efficiency.
The worlds’ forests are in danger again today, not because of energy, but because of carnivores. To feed human addiction for beef, forests are clearcut for cattle pastures. Brazilian farmers simply burn the forests on their land to create more grazing for beef.
That trend may be ebbing, though. According to Jennifer Bartashus and Diana Rosero-Pena, analysts, “Imitation meat-makers like Beyond Meat and Impossible Foods Inc. are engineering veggie burgers that are more acceptable to the masses. It’s also about the masses changing their tastes and trying to eat less meat. Indeed, there are signs of a shortage of elite veggie burgers to satisfy consumers at the moment. Consumer trends, including health and wellness, animal protection and environmental concerns, continue to gain traction, aiding sales growth prospects for plant-based meat substitutes. Millennials are driving this trend, and their growing disposable incomes allow them to spend in support of their beliefs.”
We can ask, “What about religious values? Are Hindus the only ones concerned?” No. MSCI publishes the Catholic Values Index, which excludes companies involved in abortion, contraceptives, stem cells, pornography, alcohol, tobacco, gambling, firearms, nuclear power and GMO.
MSCI also publishes an Islamic index, which eschews vintners, distillers, breweries, bars, pubs, tobacco, pork, pornography, pawn shops, mortgages, stock exchanges, credit cards, insurance, military equipment, gambling, lotteries, radio, broadcasting, hotels, cruise lines, restaurants, movies, television, cable and satellite. However, Sharia law provides an interesting workaround, which incidentally increases charitable contributions. If a company derives part of their income from these haraam activities, they may still be invested in if they “purify their dividends” by donating the proportion earned by these activities to charity.
Another Islamic index, published by the Bombay Stock Exchange, is the TASIS Shariah 50 Index, overseen by the Taqwaa Advisory and Shariah Investment Solution (TASIS). And the S&P has created the BSE 500 Shariah suite of indices, one each for the US, Europe and Pan Asia. The US Sharia index is up 2.5% as of this writing, badly lagging the broader markets.
You choose: Beyond Burger is just one of several non-meat alternatives to beef that are capturing the market’s attention
Issues for Hindus
Current ESG principles—even these religious indexes—do not screen for companies who participate in cow slaughter, such as McDonalds, so they are not exactly what we want as Hindus. And when one searches the CalPERS SIRI database of ESG papers, there are zero results for “vegetarian,” “animal” or “cruelty,” though one finds hundreds opining on board diversity. As Hindus, we need to go beyond ESG.
What are the unique ideals of the Hindu investor? Moody’s Senior Vice President, Venkataraman, summed it up last August when he told me, “The Hindu idea of ahimsa provides a unique ESG-compliant framework. Hindu philosophy sees the Divine as being immanent in all of nature, including inanimate nature. Thus, treating animals and the Earth with respect and regard is deeply resonant with Hindu philosophy. Those ideas can be extended to avoid investments in industries that pollute the Earth or treat animals violently or treat workers badly. An agnostic investor may adopt ESG principles, but a Hindu investor has a powerful faith-based rationale for doing so.”
The ideal of dharmic investing is to uphold a respectful religious culture which honors all souls and Bhumi Mata herself. At the dawn of this millennium, climate change is a looming concern.
Yamas and Niyamas
We can propose a solution: we can screen investments with the yamas and niyamas, the ancient ethics written of in over 50 scriptures beginning with the Rig Veda and comprising the first two steps of Patanjali’s eight-step yogic path to God Realization. For the best American English essays on these Hindu ethics, read Yoga’s Forgotten Foundation, by Satguru Bodhinatha Veyanswami. The yamas and niyamas provide good guidelines for dharmic investing, just as Tiruvalluvar tells us about the right time to invest: “A man may tightly bind himself to prosperity by the tether called timely action” (Kural 48).
The very first and foundational yama is ahimsa, not harming others in thought, word or action. As a first screen for investment, that would steer us away from gun manufacturers, like Smith & Wesson, and companies like McDonald’s (MCD), Hormel (HRL) and Tyson (TSN), or lesser-known Pilgrim’s Pride (PPG) and Seaboard (SEB), each responsible for killing millions of animals. MCD is one of the Dow 30, so when one invests in the Dow index fund, one participates in papam.
Arjava, honesty, is another dharmic investing screen. There is just as much hype in the dharmic investing space as any other, so we need a screen for honesty, as well as asteya, non-stealing. We can invest in honesty, enforced by surveillance equipment, in promoting ethical energy and in producing high-quality communication tools such as Apple computer.
The third yama, asteya, includes avoidance of debt. Avoiding debt-ridden companies is also good investment advice, since highly leveraged companies are more vulnerable in economic downturns. This is an extreme position, since debt is so prevalent in the world; but my guru advised avoiding most debt.
Debt results from discontentment with what we have, mixed with perhaps a dash of adharmic impulses if the borrower knows he will have a tough time repaying, or—from the perspective of the lender, the bond buyer—knows the borrower will. This means investing in bonds may be considered adharmic, as it is debt. Debt has caused great suffering in the world, from the suicides of failing farmers to the impoverishment of nations. Want to know who is debt-free? Here are a few: Facebook, Intuitive Surgical, Skyworks Solutions, T. Rowe Price Group, Lancaster Colony Corp, Universal Display Corp and PS Business Parks.
Won’t debt-free companies under-perform because all enterprises need leverage? Well, there is OLED, up 155% year-to-date, while debt-laden S&P500 is up only 20%. Just a high-tech anomaly? Then how about Five Below, up 24% in September of last year. IRobot and Columbia Sportswear are two others. Are these stock recommendations? No. One should carefully analyze one’s personal situation, and at most add these in small doses to a diversified portfolio.
Another guideline for dharmic investing is dhriti—being steadfast in following prudent rules. Tiruvalluvar can teach us the rules, but it is our dhriti which holds us to them. Everyone has their story of an investment made on a whim, or because of social pressure, or an outright scam. Dhriti honors the rules of due diligence and prudence, for it would be adharmic to suffer a catastrophic loss.
Santosha, contentment. protects us from taking undue risks. If we envy another’s greater wealth, we may risk too much because of this cloud of envy. According to a recent survey, wealthy families are content; they generally don’t divorce, don’t change jobs frequently and don’t change houses, and often drive older cars. They are content with their lot in life, not chasing shiny objects or going deeply in debt to keep up with the neighbors. One may argue they’re content because they have money—but was it santosha that allowed sufficient stability to create wealth?
Hri, remorse and reflection, comes into play when we do make a foolish investment. Mata, cognition, shines when it all comes together in perceptive insight. And how about the niyama Isvarapujana (worship)? Well, on a recent Sunday my wife worshiped Ganesha at a temple and asked for an increase in family wealth. On Monday we received an out-of-the-blue email from a $100 million investor looking for investment counsel. Coincidence? Readers can exercise mata, and decide.
Dharmic investing is more than just where to invest, it is also what one does with the profits. Therefore tithing, dana, is an important component—realizing that everything belongs to God, and actualizing Tiruvalluvar’s dictum that the purpose of wealth is to support swamis, temples, one’s family, the poor and oneself. The above observations constitute refinements of dharmic investing, based on 20-plus years of experience.
Doing well while doing good: Cow slaughter or bovine nurturing?
Doing well while doing good: Coal mining or pristine mountains?
So, how can we integrate dharma into our wealth-building strategies? Should we trust the S&P 500 index funds to keep our ideals intact? No, this index includes 12 meat processors and 12 weapons dealers, not to mention many polluting oil companies. A better choice for our passive index investing is the Invesco QQQ Trust (QQQ), representing the Nasdaq 100 index. This comprises companies with a much lighter karmic footprint, mostly high tech, as well as the maker of Naked Fruit Juice and Quaker Oats, since PepsiCo joined the Nasdaq 100 last July. Much of the high-tech world meets our ahimsa guidelines and also increases world vidya, knowledge in the palm of our hand, and sambandham, the ability to commune with billions, inching toward our Hindu ideal of Vasudhaiva kutumbakam, “The world is a one family.”
At first glance, another possible choice for passive index investing might be iShares MSCI KLD 400 Social Fund (DSI), which bills itself as ESG compliant. However, this fund contains twelve oil companies and McDonalds, so QQQ is preferable for Hindus.
As one’s wealth increases in index funds, small, prudent positions of minority interests in public companies are also appropriate.
The yamas and niyamas provide a most organized screening tool. One might miss a big profit in an adharmic enterprise. But that’s ok, isn’t it? When Beyond Meat rises from $25 to $200 in a single month, most dharmic inverstors can feel content.
Are Stock Investments Too Risky?
Having reached $200, Beyond Meat next dropped to $150. If that type of abrupt equity change upsets your meditations, what to do? One can also invest in bonds. There is the iShares Global Green Bond Fund (BGRN), up 11 percent last year.
The Nuveen California Municipal Value Fund (NCA), which pays a 3.5% dividend, is diversified in multiple sectors including housing affordability, transportation, healthcare, education, utilities and water. One remarkable project that this fund supports is Measure DD, for the preservation and restoration of estuaries and lakes in the Bay Area. A huge estuary that benefits from this bond fund encompasses San Francisco Bay and the delta of the Sacramento and San Joaquin rivers. This is the largest estuary in western North America. With growing demand for water and utilities in the Bay Area, as well as increased activity and pollution, investing in conservation efforts to protect our most precious resource is vital. There are about $160 billion in green bonds that finance environmental causes.
Did you know one can invest in land which grows strawberries, blueberries, almonds and pistachios? Yes, publicly traded and paying a 4% dividend, Gladstone Land (LAND) owns 103 farms growing nuts, fruit and vegetables.
Invest in gold? One would think gold investing is, well, golden. But others have aptly named it “blood gold,” since it is often produced in near-slavery conditions. Is that something we want to participate in? Screen carefully. One choice is the Perth Mint Fund (AAAU), up 21.67% last year, the only sovereign-backed ETF, with shares redeemable in gold coins.
One exchange-traded fund Hindus could consider is Vegan Climate Fund (VEGN), a newly launched fund comprised of vegan-oriented companies. I spoke with CEO Claire Smith, who said, “Our aim is to help vegans and animal activists take the pain out of their portfolios.”
There’s the ideal and then there’s the deal. There are huge caveats for all investing, and dharmic investing is no exception. For every investment consideration, there is the story, the idea, the concept, which can be fabulous. For example, 95% of Beyond Meat buyers are meat-eaters! Then there is the deal—the pricing, the profit sharing, the insider options granted, which can give one pause. For example, Beyond Meat became overpriced at $235 and was at $75.60 on December 31. So while investing with a dharmic conscience, we don’t want to foolishly throw money at every idea, no matter how good, unless we have analyzed the deal. We want to buy low, sell high, plant the seed, reap the harvest, code the app, sell a billion copies. Investing is about making a profit at the end of the day. Anything else is either philanthropy, which has its big place in the world, or foolishness, which we want to leave to those who overpaid for Lyft and Uber.
Doing well while doing good: Vaping or healthy youth? Military tanks or humanitarian relief?
So, conclusions: Most research papers conclude with “more study is needed,” but in our case, conclusions are clear. We want to put our money prana into good dharmic companies, just the way we want good food prana, and good interpersonal prana. There is plenty to invest in while upholding our dharma in this new era of Hindu renaissance.
Is ESG-compliant investing profitable? Does one need to sacrifice profits to own a dharmic portfolio? History has shown that SRI/ESG investing keeps up with other investments. In 2019 one IPO showed that big money has arrived. There is a new niche sector: meat lookalikes that are vegan. Americans eat 50 billion burgers a year; Americans average three per week. Some companies are private, such as Impossible Burgers, but in some we can invest. Shortly after the May 3rd IPO, we bought Beyond Meat shares, which increased in value immediately. The scales have tipped, and the world is catching on: Dharmic investing can be very profitable. As we go to press, many chains, including KFC, Burger King and McDonalds, are starting to test-market vegan options. Or consider Enphase Energy, a Fremont, California-based solar company, up a mere 484% last year.
Funds as well as individual companies are traded on exchanges. Today Exchange-Traded Funds (ETF) have become more popular than the old-fashioned mutual fund, since they have generally lower fees and the ability to invest and divest during the day when exchanges are open. The old mutual funds could only be bought or sold once a day at a set price after the exchanges closed. There are now 96 socially responsible ETFs, with total assets under management (AUM) of $20 billion. The iShares Global Green Bond ETF (BGRN) was up 8% in 2019. The Invesco Solar ETF (TAN) is up a spectacular 62%, and is, in fact, the best performing ETF of the year! So the answer to the question “Can Hindu investing keep up with the market?” is a resounding yes; done well, it can surpass the market.
Types of Social Screens
There are many more options for social screens currently available than there were in the early nineties. There are currently four basic approaches, two of which were already mentioned. The original approach is called “Socially Responsible Investing,” abbreviated as SRI. Some prefer to call it “Socially Responsive Investing.” It excludes companies that are involved in activities such as nuclear power, tobacco, alcohol, gambling, military weapons, civilian firearms, GMOs and adult entertainment.
A second, more recent approach, which has become significantly more popular in the last few years, is called “Environmental, Social, Governance” (ESG). The ESG approach chooses companies that have positive environmental, social and governance characteristics. Environmental generally refers to a combination of factors including energy efficiency, environmental impact, and the sustainability efforts of companies. Social covers things like human rights, labor and consumer protections, and public health values. Governance considers the responsiveness of a company to stakeholder (employees, shareholders and customers) concerns, proper oversight of a company and its executives by its board, and the checks and balances in place to protect the stakeholders.
The third approach is called “Sustainable Investing,” focused on creating and supporting a sustainable global community. This means investing in companies and industries that use as few resources as possible or improve the efficiency of those resources, so as to preserve precious natural resources for future generations and the health of the planet. Sustainable investing also means trying to invest in ways that will help current generations pass on an equal or better quality of life to future generations, creating a sustainable future for everyone. Along these lines, Morgan Stanley has created the “Institute for Sustainable Investing,” describing their mission as: “For us at Morgan Stanley, it is abundantly clear that the solutions to global challenges can only achieve the required scale if they can attract a critical mass of private capital. To this end, we’ve established the Morgan Stanley Institute for Sustainable Investing to lead work across our firm, with our clients, and with academic institutions to help mobilize capital to sustainable enterprises, via global markets and the investors who drive them.” See URL: www.morganstanley.com
The fourth approach is called “Impact Investing” or “Investing with Impact.” In some ways, this is the wild west of the social screens’ world. The idea is not just to avoid the bad companies, industries, or countries, which is accomplished by screening companies based on certain factors you choose, leaving you with a well diversified portfolio. Instead, impact investing tries to invest in companies, organizations, or even people that are working to make a direct positive impact in a particular area. These investments are often more concentrated and therefore riskier because of the specificity of the reason behind the investment. They may also be safe or only moderately risky investments but deliver a below-market-rate return in order to help the cause, providing a combination of financial and personal reward rather than only financial. Morgan Stanley defines this as “an approach that aims to generate market-rate returns while demonstrating positive environmental and/or social impact.”
Blackrock Sees the light
The year 2020 started with an unexpected boost to ESG investing. Blackrock, the world’s largest money manager, announced that it is overhauling its investing strategy to make sustainability the new standard for investing. As the headline on its website now boldly states: “Making sustainability our standard.” In letters to CEOs and clients in January 2020, Blackrock’s Chairman and CEO Larry Fink explains the company’s new emphasis. He states that regarding sustainability, “the most significant of these factors today relates to climate change, not only in terms of the physical risk associated with rising global temperatures, but also transition risk—namely, how the global transition to a low-carbon economy could affect a company’s long-term profitability.”
In terms of specific changes in Blackrock’s investment products, he states that “We intend to make sustainable funds the standard building blocks in these solutions wherever possible.” This would be the equivalent of a car maker moving from having just one electric vehicle to offering an electric version of each of its many models.
Poll: A ten-minute online survey was conducted with 1,056 American adult investors with at least $250,000 in investable assets. True North Market Insights conducted the poll between March 16 and 19, 2018. The statistical margin of error is +/- 2.6%. Graphic courtesy Ameritrade.
Modern society is characterized by an excess of opportunity. We have more information, more products, and more options than ever before. As a result, curating, filtering and refining are more important skills than ever before. Those who edit best will find the signal in the noise. One can make the case that investing with ESG compliant companies can enhance returns because those companies are less likely to incur large fines, are more likely to retain talented staff and do not risk reputation issues. One of the arguments in favor of ESG based investing is that these are the companies of the future, those that will survive tough times ahead and still be in business in 50 years.