Even if you’re careful about where you invest your money, it can be hard to know whether the companies you’ve put your trust in will do what they say they will. This can also be true of mutual funds, as the fund managers have the discretion to buy stocks or bonds based on their investment criteria and serve as shareholder advocates on many corporate issues.
We at Falcons Rock Impact Investments understand your concern. Socially conscious mutual funds can be a wise choice for investments because they utilize a rigorous screening process. This means that if a fund is socially responsible, it will only hold securities in companies that care about corporate governance issues and adhere to high standards.
What does this mean for you as an investor?
It means that you can make a difference – yes, you individually by pooling your money along with others in socially conscious mutual funds. Shareholder activism, engagement, and ownership are taken very seriously in the world of socially responsible mutual funds: one of the criteria of corporate governance is that shareholders’ concerns are heard and responded to. When a mutual fund invests in a company, it has a stake in how they run things. This gives you the power, though the mutual fund, to raise issues you have about environmental, social, or governance issues with the company itself and suggest policy changes. There are a number of ways a mutual fund does this:
- Attending shareholder meetings and joining shareholder coalitions to engage in dialogue with corporate management about their practices
- Filing or co-filing resolutions or proposals to be voted on by shareholders
- Voting by proxy
- Participating in public policy initiatives to work with government agencies and report issues
What can these things do?
When investors contribute to discussions about corporate governance and become active participants in how companies run, they call attention to what matters. Even if a filed resolution doesn’t go anywhere right away, it will at least prompt a discussion. Actions like this could garner media attention or educate the public on corporate governance issues. Heavy involvement leads to transparency, disclosure, and oversight of how companies engage in politics, human rights issues, how they report their profits and impact, and how they handle internal decision-making, voting, board elections, and paying their executives.
Trust is an important factor in investing of all kinds, but especially when it comes to corporate governance and impact investing. Not only are you putting your money into someone else’s hands in the hopes that its value will increase, but as a thoughtful mutual fund investor, you’re putting your money into the hands of someone that you’re trusting to do good on your behalf. At Falcons Rock Impact Investments, we know what you’re looking for and want to help. Find out how to get started.