Monday, April 11, 2011

USCCB Socially Responsible Investment Guidelines - Part 5: Pursuing Economic Justice

The fourth area covered by the investment policies of the USCCB is "Pursuing Economic Justice".

Economic injustices are plentiful in the business world where increasing profits is sometimes the only goal for companies.  With public companies, management is often evaluated based on the earnings per share metric. If a company makes a lot of money, the share price would naturally be higher.  Therefore, the incentives for management would often be just to maximize the profits.  That is not to say that all companies increase their profits and neglect any moral duty.  However, many a times, companies have to make an extra effort in ensuring that their operations promote economic justice.

The 2 sub-categories under this area are:
  1. Labour Standards/Sweatshops
  2. Affordable Housing/Banking

Labour Standards/Sweatshops
The use of sweatshops are especially prevalent in clothing manufacturers' operations in developing countries.  Sweatshops typically have harsh and dangerous working conditions.  Some force workers to work long hours with very poor wages.  Some exploit child labour. is an active voice on this issue and lists a number of companies that allegedly operate sweatshops.  They include Walmart (Ticker: WMT), Kohls (Ticker: KSS), and Abercrombie & Fitch (Ticker: ANF).

When I became interested in True Religion (Ticker: TRLG), one of the first things I wanted to find out was whether they operated any sweatshops.  It turns out that they do not manufacture their own products, but hire contract manufacturers in the United States to make their jeans and clothing.  So, I breathed a sigh of relief, knowing that labour regulations in the US are strictly enforced and as a result, no "sweat" would be involved in the making of their products.

There is, however, the other side to this argument.  Some argue that while it is true that conditions are harsh in these supposed "sweatshops", the working conditions of other work in those developing countries are often even worse.  For example, one could choose to work at a Nike factory for 12 hours a day or work on a farm under the burning sun for 14 hours.  Of course, the local farms don't nearly get as much attention as the Nike factory does.  Some also claim workers wished Nike would expand even more in their area so that their relatives would also get to work at Nike.

In the end, it all comes down to your own evaluation of the situation.  I always think that "where there's smoke, there's fire".  You will not get a real idea of the working conditions of a factory unless you're really there to investigate.  I would say it's best to avoid companies which have a long history of complaints (e.g. Walmart and Nike).

Aside from investing in these companies, perhaps it's also not a bad idea to boycott these companies yourself to send them a message that you don't agree with their business practices.

Affordable Housing/Banking
This category applies mainly in the US.  In the past (and even presently in a few cases), financial institutions engaged in a practice called "redlining".  This term was coined from the banks drawing lines on a map to highlight communities where they would use discriminatory lending practices.  The banks would either refuse to lend to certain people from an area or increase the borrowing costs for them.  Typically, the discriminated areas would be areas with a high concentration of non-white population.

This practice is essentially racial discrimination.  The Community Reinvestment Act was passed in 1977 to discourage this type of behaviour.  One interesting fact: apparently, President Obama, as a lawyer in 1994, represented a man who sued Citibank (Ticker: C) for redlining.  Some have attributed the curbing of redlining to the subprime mortgage financial crisis in 2008.  I don't believe that is the case.  The Act's intent was to help discriminated communities get fair treatment from the banks.  Nowhere in the Act did it tell the banks to lend money to borrowers who could not pay the loans they borrowed to buy seven houses that cost way more than what they would make in an entire lifetime.

The category of Economic Justice is an extension of the Human Rights category.  Every human person should be treated with dignity and not be discriminated based on their gender, race, etc.  Even with some cursory research, you should be able to dig up some dirt.  Good luck!