A New, Evolving Chapter in Investing

Increasing numbers of investors are shifting toward a new investment style that applies new standards for high-quality investments. This philosophy involves investing in companies that reflect the shareholder's personal beliefs -- or at least don't work against them. Like everything else in life, investment philosophy evolves.

When searching for prospective investments, some investors are adding in more holistic criteria, such as empathic leadership, corporate values that align with the investor's personal values, and high-quality businesses that strive to make the world a better place, rather than simply maximizing profits on a quarter-by-quarter basis.

Large groups, growing financial power
Some of this growing shift owes to a straightforward financial factor: demand.

Sallie Krawcheck, former Merrill Lynch and Smith Barney exec, penned a LinkedIn post on a Big Idea for 2014, explaining why more stakeholder-friendly investing is increasingly important. Two large groups, women and millennials, are increasing their wealth and showing an interest in responsible investing. Contentions about this major shift are borne out elsewhere.

The U.S. Trust's "2013 Insights on Wealth and Worth" points out that 45% of high-net-worth individuals see their investment decisions as ways to express their social, political, and environmental beliefs. Further, this focus on responsible investing was especially high among women and relatively young investors: Of women in the pool of respondents, 65% believe it is important to view investments through the lens of their impact on society and the environment, and 67% of Gen X and Gen Y respondents agreed it was important.

Females' financial aspirations and influence are growing. First Affirmative Financial Network, which tracks trends in socially responsible investment, recently pointed to females as a significant economic force with a sustainability focus.

According to the U.S. Department of Education, women control 60% of wealth, and their numbers are growing at twice the rate of men's. In addition, some estimate that by 2030, females will control two-thirds of wealth in the U.S.

Millennials embrace a similar view of business and investing. According to one study from the Social Science Research Network, 90% of MBAs would accept lower paychecks if they could work for a company that takes social responsibility and ethics seriously.

Millennials are also attracted to "impact investing" in its many forms. Their business decisions will build intellectual capital into workforces going forward. If young people -- a Boomer-like force in sheer numbers -- want to work that way, as they amass wealth, they will likely invest that way.

Pioneers of a profit philosophy shift
Some people still don't believe that environmentally and socially conscious initiatives can actually boost companies' bottom lines, rather than simply giving the public a warm and fuzzy feeling.

Still, some major companies have been earnestly increasing their environmental and social friendliness. These wildly successful companies -- with massive long-term investment returns -- express this in their shareholder letters and 10-K filings:

  • Costco's (NASDAQ: COST  ) 2013 annual shareholder letter: "We continually ask ourselves: Are we improving our performance? Are we growing our business? Is our performance in the eyes of all our stakeholders -- our members, our employees, and our suppliers -- better than it was yesterday?"
  • Facebook (NASDAQ: FB  ) CEO Mark Zuckerberg: "Facebook was not originally created to be a company. It was built to accomplish a social mission -- to make the world more open and connected. ... These days I think more and more people want to use services from companies that believe in something beyond simply maximizing profits."
  • Whole Foods Market's (NASDAQ: WFM  ) "higher purpose statement": "With great courage, integrity, and love, we embrace our responsibility to co-create a world where each of us, our communities, and our planets can flourish -- all the while, celebrating the sheer love and joy of food."
  • Starbucks (NASDAQ: SBUX  ) CEO Howard Schultz: "The complexity of these times requires, in my view, that businesses complement their main goal of profitability with actions that can help our society move forward in ways that benefit as many people as possible. With this in mind, those of us who lead public companies, in particular, have a duty to share our organizations' success with our people and reach out to the communities we serve, in addition to creating shareholder value."

Big-picture quality
Each of these companies makes a compelling investment right now, given their intrinsic strength.

Costco recently reported quarterly results that were viewed as disappointing by many investors. However, a same-store sales jump of 5% and a 6% net sales increase isn't exactly a disaster, even though the quarter has been viewed through such a pessimistic lens. Strong retailers and weak retailers alike have faced headwinds including a tough holiday season and terrible weather. When investors take a short-term view and lose taste for such stocks, it often makes a golden opportunity for sharp investors to build positions in great companies,.

Facebook suffers no such brick-and-mortar concerns. Continued evolution and innovation makes it look expensive according to traditional valuation metrics, but let's face it: Disruptive companies are extremely difficult to value. There's something to be said for investing in a company that's building a loyal user base and carries so much hope for social interconnectedness and even the potential for world-changing democratic communications with governments and corporations. Its WhatsApp acquisition should allow it to spread its influence and penetration across the globe as well.

Like Costco, Whole Foods Market has been laid low by concerns about its last quarter, as well as panic about its margins, given continued value pricing on goods. However, it plans to market to larger groups of people who may have previously feared its "Whole Paycheck" image. And when it comes to vision, Whole Foods beats rival grocers hands-down, differentiating itself with higher-purpose initiatives that champion stakeholder care.

Starbucks hasn't been in the spotlight much, but it's been buying up innovative companies to plug into current trends, including Teavana, Evolution Fresh, and La Boulange. It's setting itself up for growth despite the coming disruption of brick-and-mortar businesses, and that's happening largely behind the scenes.

Where the real gold is
Investors can clock great returns by investing in companies that do well by doing good -- especially given the current shift in wealth and values. But what do we call this type of investing, which may have a lot to do with heart, soul, and financial success?

Many common names for similar investing philosophies come to mind, such as socially responsible investing and green investing. In time, a term may stick that encompasses how capitalism drives societies forward and upward. Concern for stakeholders at every level is at the heart of these strategies.

And for those who don't like the current terms, here's one that has been around for centuries: the Golden Rule.

Check back at for more of Alyce Lomax's columns on environmental, social, and governance issues.

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  • Report this Comment On March 21, 2014, at 5:03 AM, Interventizio wrote:

    Not to mention that socially responsible investing proved to be more profitable over time. At least, I think I read this somewhere.

  • Report this Comment On March 21, 2014, at 9:01 AM, TMFLomax wrote:


    Indeed, there are studies that do show that stocks of companies that display the socially responsible attributes do as well or even better over long periods of time!



  • Report this Comment On March 22, 2014, at 6:20 AM, DJDynamicNC wrote:

    Could not agree more. I shop the same way; I'll patronize some businesses, but not others, based on their actions globally. Investing is no different. I want my dollars working for me in a manner that makes me money, yes, but not at the cost of my conscience. I couldn't buy Altria or Wal-Mart and still sleep soundly at night - and I can't think of any amount of money worth selling that for.

  • Report this Comment On March 22, 2014, at 12:26 PM, DoctorLewis4 wrote:

    Wonderful article although I wonder if you could help us with including Whole Foods. I know their CEO is on the Fool board - however myself and some other investors have always found it difficult to get past John Mackey's troubling ethical lapse during the Wild Oats deal. He should absolutely be forgiven, however I don't forget. When investing ethically, I want to know as best I can that the CEO of the business knows right from wrong.

  • Report this Comment On March 24, 2014, at 12:18 PM, TMFLomax wrote:

    Hi DoctorLewis4,

    Thanks for the post!

    Yes, the Wild Oats deal was understandably controversial, and a lot of people do still think about it now.

    I wasn't thrilled with the situation at the time (and I was a shareholder and really liked the company and John Mackey's vision, but I did write an article about my feelings about that, which weren't positive -- but didn't sell), but the split in opinion amongst stock watchers and even the public was interesting.

    There was a lot of disagreement about the idea that, since he wasn't posting as himself and was sort of another random person on discussion boards, it wasn't really actionable information. Given the fact that as we know, tons of people post anonymously on the Internet (and whether that's good or bad is yet another topic, since sometimes people do and say things they wouldn't say under their own names, so sometimes it gets "hairy" out there).

    I did end up feeling that, while I really respect his leadership and frankness about his feelings about a lot of issues that most CEOs wouldn't touch or admit, this was one of the moments when I thought it was not the best judgment.

    However, the investigations never did prove/show wrongdoing, and the board put in place more stringent rules for communications for executives.

    I think in a way it was a good lesson overall. Transparency is very important, and situations like this frome more high-profile people can look bad, even if the intent wasn't there to speak in an "official capacity" and manipulate anything.

    Whole Foods has been big in proving out the general ideas above -- that companies really can be very successful and profitable without forgetting about other stakeholders, and in fact, boosting a lot of them.

    Thanks for thoughts -- I know that a lot of people felt that way about the incident.



    PS: Another note on history of that situation (and I really do like trying to remember some details over years of certain companies/stocks histories): I still think the antitrust scrutiny was bizarre at the time (before this incident came to the fore). As the years have gone by, we are now in a situation in which Whole Foods has a LOT of competition (even though obviously somebody back then tried to argue that it was "monopolistic" -- so weird). I doubt many competitors can replicate its actual big-idea model, and in fact are simply competing on price. That part of the story does prove out that when an upstart does something differently, competition does crop up.

  • Report this Comment On March 24, 2014, at 7:06 PM, DoctorLewis4 wrote:

    Well said Alyce. I never did think anything Mackey did was illegal. But that action, as well as his tendency to shoot from the lip, is a factor and how he is judged. As followers of public companies we know that a CEO can say 1,000 things right, but one poorly phrased comment is enough to really do damage. It's a tough job but I guess that's why they make the big bucks!

  • Report this Comment On March 24, 2014, at 7:18 PM, damilkman66 wrote:

    One person's saint is another person's devil. My wife is very big into alternative food and local coops. The local Whole Foods and other "progressive" chain stores that cater to the organic alternative market in my area have been leaning heavily on the suppliers and attempting to freeze the coops out. Why? Because the coops are not in it for the profit and can undercut the margins of Whole Foods.

    I can't stand Starbucks because they sell sugar death to ignorant customers because it improves their margins. Now they are are adding alcohol. Plus if you are lactose intolerant your only option is soybean milk. I picked up a hot coccoa at a local shop and was impressed by how little sugar was added. I'm sure they lose business to the mega sugar chain.

    After all of the concerns of monitoring and use of data mining, what do you think enlightened Facebook does? We quake if the NSA profiles you but think nothing of Facebook. Despite being in the Internet business since it's inception I refuse to have a Facebook account much less post a picture of me.

    I agree with the author that more of us are aware of what we invest in and are influenced by how a company makes its money. But we also have to be aware that spin is used to trick us into believing some are more benevolent then they seem. Proof of this is my heavy disagreement on the author's choice of enlightenment.

    I will agree COSTCO rocks. I have no complaints there.

  • Report this Comment On March 24, 2014, at 7:33 PM, cmalek wrote:


    " there are studies that do show that stocks of companies that display the socially responsible attributes do as well or even better over long periods of time!"

    You can find studies to support any position one may have, no matter weird it is.

    Goal #1 for all companies is to make their product. Goal #2 is to do it profitably. I wonder how socially responsible would companies be if faced with a choice between profit and social responsibility. I notice that sin stocks are not doing too shabbily. I guess socially responsible investing does not affect them.

  • Report this Comment On March 24, 2014, at 8:24 PM, TMFLomax wrote:

    Thanks for the thoughts!


    Good points on the saints/devils and how that's a subjective opinion. I see all your points. (I also agree that COST rocks. Hard to come up with too much bad about them.)

    Facebook is a really interesting one, and over the years I have at times loved them (the vision is great) but, yes, the privacy stuff is really troubling at times. Zuckerberg at one point did appear to have the opinion that in the future privacy will not matter.

    But, did you hear that he recently spoke out against NSA surveillance?

    His Facebook post:

    Next step, CEOs including Zuckerberg meet with the president on the situation, FWIW:

    It's definitely interesting!


    Well, I think the argument with many of these positive companies is that their social responsibility actually helps them make a profit (and in these cases, they are extremely successful businesses).

    I wouldn't argue with you that sin stocks have a tendency to do well -- most of the time. I think that they are always in danger of reputational and legal risks (leading, of course, to financial risks) over the long term. It may not happen tomorrow, but it's definitely a risk. (With many, the increasing scrutiny of substances -- including sugar, fat, etc. -- in the current health trend is an increasingly big deal, regardless of whether one agrees or not.)

    So, we're all free to choose "saint stocks" or "sin stocks" or whatever we want to call them. I'd say the former are a lot safer though.

    I don't have all the studies at my fingertips, but here is some interesting data about list of "Firms of Endearment" companies (very positive, stakeholder-friendly companies) -- they have been revisited in the last month or so given the publication of the second edition of the book about them:

    Scroll to the bottom for the lists' cumulative returns; not bad (and that's an understatement). So again, investors can do well investing in companies that do good.



  • Report this Comment On March 24, 2014, at 10:26 PM, HoosierRube wrote:

    According to one study from the Social Science Research Network, 90% of MBAs would accept lower paychecks if they could work for a company that takes social responsibility and ethics seriously.

    I have no idea who the Social Science Research Network is, but statistically I dont think its possible to get 90% of ANY random group of people to agree on ANYTHING..

    When you see a statistic like this, you gotta repeat after me;

    - there are lies

    - there are damn lies

    - and there are statistics

    90%... Come on....

    There is only one honest social science. And thats Economics. It accurately predicts human behavior. Not based on a poll, but real life research, study, compilation and analysis. A poll is NOT a fact.

    Econ tells me this, 90% of all MBA's will attempt to make as much money as they can.

    90% of all plumbers will attempt to make as much money as they can.

    90% of Chinese bicycle delivery folks will attempt to make as much money as they can.

    90% of European bloggers will attempt to make as much money as they can.

    90% of 5'7" women will attempt to make as much money as they can.

    90% of people that live in grey sided homes will attempt to make as much money as they can.

    Thats reality, and thats how people behave.

    90% of MBA's will take less money because.......

    I dont care what you add after 'because...', it still wont be true.

  • Report this Comment On March 25, 2014, at 1:27 AM, 2motley4words wrote:

    HoosierRube: Since your pronouncement "I don't think it's possible to get 90% of ANY random group of people to agree on ANYTHING" [emphases yours] is immediately followed by your pronouncement (allegedly based on economics) that 90% of ALL (emphasis mine) groups are primarily motivated by money, the implication is that your claims regarding 90% of the population are more credible than those of a research body. (Too, some folks might opine that the best response to your listing of several instances that purportedly prove your 90% rule---"90% of . . . will attempt to make as much money as they can"---is provided by your own last words: "it still won't be true.")

  • Report this Comment On March 25, 2014, at 9:46 AM, HoosierRube wrote:

    2motley4words, Exactly......

    You fail to recognize nuance.

    Motivated by money, success, security, however you'd like to coach the term is fine with me.

    Believe in whatever makes you happy. I dont care.

    But 90% of MBA's will take less money for.... is laughable. And laugh I will. Dont care if it upsets the unicorns in your garden or taints the rainbow of your life.

    Take an Econ course, learn how people behave. You've been trained to 'follow your leader' and sacrifice for the sake of your leader. I'm fine with that.

    But the rest of us will opt out for securing ourselves, families and friends against the ravages of nature.

    And I do say, you cant get 90% of any group to agree to anything. I was mocking the whole idea of a poll that would claim such.

    But here is what i absolutly know, the vast majority of people will do what is in their own self-interest. Even you.

    You can argue that until your blue in the face and I'll never believe it.

  • Report this Comment On March 25, 2014, at 4:40 PM, TMFLomax wrote:

    Study behavioral economics, and learn how people behave. ;)

    People do not always function "financially rationally," and in fact, a lot of times they don't. There are payoffs that are about much more than money. There are tons of psychological experiments about things like this.

    "In your own self-interest" is often helping someone for nothing. It very often comes back. In business as well.

    I'm pretty sure that Adam Smith's "Theory of Moral Sentiments" touches upon some of this. To touch upon more econ.

    (I grant you, a lot of economic theories make perfect sense in theory. However, they are theory and they do not always function how our rational minds believe they "should.")


  • Report this Comment On March 26, 2014, at 9:31 AM, HoosierRube wrote:

    Still not buying it Alyce.. You've made a lot of statements that are just not factual.

    All economics are behavioral.. They all are predictive of what consumers will/will not do. When you have to call it 'behavioral economics' I would suspect it is nothing more than pat me on the back, feel good mantras of the economically privliged.

    You should walk the streets sometime that are outside your comfort zone.

    Its not safe, but its real... And the majority of people live in these conditions. They cant afford a Starbucks, or WholeFoods or any of the other trappings of a comfortable liberal lifestyle.

    Karma is not a foundation for a business.

    Where is Walmart on your list? Or Chevron? Or IBM? Or any of the thousands of compainies that make real world contributions to their communities with cold hard cash? The millions that they poor into United Way have a bigger impact on peoples lives than the 'blowing rainbows up peoples kisters' crews.

    I have more respect for the local car dealer that supports a little league team than any of your gated-community serving businesses.

  • Report this Comment On March 26, 2014, at 2:04 PM, SkepikI wrote:

    <as panic about its margins, given continued value pricing on goods. However, it plans to market to larger groups of people who may have previously feared its "Whole Paycheck" image. And when it comes to vision, Whole Foods beats rival grocers hands-down, >

    hmmm Alyce, where do I begin? Whole Foods beats rival grocers hands down? In who's opinion. Not mine...and who are "rival grocers" certainly not the direct competition in my neck of the woods. BUT of course I am not inside the beltway and don't suffer from MBA MF Alexandria centered myopia...

    "previously feared its "Whole Paycheck" image, you mean as in last week? I'd do a price check for you, but it would neither be pretty nor I fear very interesting to you or the editors at MF.

    To pose more clearly a past question that confused readers: How is it possible for a grocer to be "sustainable" or "prosocial" with prices so rich that average people cannot afford to regularly shop there ? Certainly does not meet my definition of either, though it obviously meets yours....which makes me wonder....

  • Report this Comment On March 28, 2014, at 2:54 PM, dreamimmigrant wrote:

    Have to agree...there are very few principled and morally conscious investors... I like Warren Buffett the best who is a big advocate on saving the planet from harmful emissions, wage equality and a hero for the middle class..

    Inspired by his impact investing in social causes, I have followed his principled example and invested in stocks like

    Exxon Mobil (XOM) Conocco Phillips (COP) and Phillips 66 (PSX) - these companies are heavily investing and researching in green technologies and reduction of dirty fossil fuels

    Walmart (WMT) - a fearce advocate of wage equality

    Wells Fargo (WFC) advocate for low income families that need housing

    All of us need to be involved in impact investing. Warren Buffett and myself are impacting the environment and economy. Join us.

  • Report this Comment On March 28, 2014, at 4:27 PM, Faraz wrote:

    Hypocrisy . All these "Mission/Vision" statements of creating a better world, FB was not intended to be a company etc. They all are motivated by money...bottom line

  • Report this Comment On September 10, 2014, at 9:35 PM, thidmark wrote:

    I don't believe that 90 percent number either. And, aside from Whole Foods, I wouldn't give a damn dime to those other companies.

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Alyce Lomax

Alyce Lomax is a columnist for specializing in environmental, social, and governance (ESG) issues and an analyst for Motley Fool One. From October 2010 through June 2015, she managed the real-money Prosocial Portfolio, which integrated socially responsible investing factors into stock analysis.

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