Do You Know Where Your Money Is?

Responsible investing that’ll impress your kids

by NINA WINHAM

It came for your 10-year-old on her birthday: a $500 cheque from Grandma with a note saying “Invest it wisely!” So off you go to your financial advisor, where you and your little investor consider mutual funds. She learns about how the fund will buy stock in various companies, and how to make choices to help the money grow. You’re aglow with the educational moment: teaching her good fiscal management, sound judgment, responsibility for the future…

Then your kid (a budding animal rights activist) asks, “Mom, how do they pick which companies to give my money to? What if they test chemicals on animals?”

Got a quick answer? If you’re like most of us, this question might make a train wreck of your excellent educational moment. Because let’s face it: mutual funds are an out-of-sight, out-of-mind way of convenience investing. A welcome convenience in our busy world, for sure, but one that makes it harder to give your socially conscious child the answers to her burning questions.

In our economy, capital is raised to build buildings, expand operations, produce goods, and deliver services. Companies big and small rely on shareholder equity to grow and change—equity that tracks back to your kid’s mutual fund holding. Where the money goes, our economy—and society—grows.

When you buy stock directly, you come face to face with the company you’re buying into (well, not literally, but work with me here). You consider its line of business, its track record, and the market for its goods and services. But with a mutual fund, you’re buying a manager. That person does the legwork and makes choices for you, and is bound only by the general nature of the fund (high-growth, Canadian, high-tech, etc.). It’s a way to buy stocks and pay minimal attention to the specific companies you hold—a relief for those of us without the time or savvy to manage a stock portfolio.

But it’s also a step removed from really knowing what your money is doing out there in the world. Your manager’s only instructions may be to make the most money they can. But what if you don’t like the way they do it?

You’d probably think twice about returning to a restaurant where the owner was publicly abusing his staff. You’d consider boycotting a company caught using seven-year-olds in its factories. And if a company in your backyard were dumping chemicals in a salmon stream, you wouldn’t want this to be part of “business as usual.” At the same time, wouldn’t you want to reward a company that’s got it all together, with well-treated employees, strong environmental programs, and a thoughtful approach to human rights in other countries? If it was that easy, of course you would.

These days, we have a lot of choices to bring that same mindfulness to our investing. Mutual funds with ethical screens (programs used to meet particular selection criteria) abound. When you buy these funds, you step up to the counter and place your order: “I’d like to grow my money. And, I’d like to build a better world. I know my money has power—and I’ll be in charge of that power, thank you very much.”

But don’t expect applause from your kid when you tell her she can buy a fund that’s screened for testing on animals. It’ll make so much sense, she’ll think we always did it this way.
Nina Winham is principal of New Climate Strategies (newclimate.ca), a consultancy focusing on sustainability, communications, and business strategy. Her four-year-old holds no mutual funds so far, but is already very good at asking questions.