Is Your Socially Responsible Investment Really Responsible?

Published: June 1, 2020 | 12:53 AM ET

By: Ivory Johnson, CFP, ChFC, Founder, Delancey Wealth Management, LLC

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Socially responsible investing can be described as a strategy to purchase securities of companies known to profit from ethically sound business practices. Scrutinizing the means by which those assets appreciate would likely eliminate tobacco companies or firms accused of damaging the environment, creating a $4 trillion niche industry on Wall Street.

With that said, the prison industry generates $80 billion a year, which is 11 times as much money as the NFL makes from television contracts. To put this into context, not only do the orange jump suit manufacturers and collect phone call facilitators make a profit from the criminal justice system, but the best way to predict how many prisons should be built to accommodate future inmates is to review 3rd grade reading levels.

That fact in and of itself is not concerning, except that many states have received payment from private prison operators in exchange for a contractual obligation to keep the prison beds 70 to 90 percent full. It’s worth noting that states have to make up the difference when they fail to identify enough prisoners.

Lo and behold, the states are responsible for the education system and several state crime labs get paid per conviction, creating an inherent conflict of interest. Meanwhile, it is not uncommon to see school suspension rates and the number of kids placed in special education for certain demographics be several times the national average, sometimes occurring as early as kindergarten.

All of this would be explainable, except that over the last 25 years crime rates have dropped in half, while over the same time period prison populations have doubled according to the Bureau of Justice Statistics. Some are beginning to ask if this too is an unethical practice. Socially responsible investors concerned about the school to prison pipeline, however, have a tough road ahead of them if they’re intent on identifying members of this growth industry.

First, how do you avoid participants? Do you shun the banks that finance the construction of the private prisons, the $10 a day ankle bracelet manufacturers, the food service contractors or your cell phone provider who has a call center inside the prisons to reduce costs? How about the fast food company that hires inmates to make beef patties or the retail stores that trains them to make blue jeans behind the wall? Nothing cuts expenses like low cost labor.

Socially responsible investors are starting to demand similar returns as their non-altruistic counterparts. So how much is your set of values worth? Our prisons are home to some very dangerous people and others who have made bad decisions. Nevertheless, a case can be made that disadvantaged children are not always seen as future innovators, but the source of our own bottom line.

Ivory Johnson, CFP®, ChFC
Delancey Wealth Management, LLC
20 F Street, NW, Ste. 750
Washington, DC  20001
(202) 507-6340

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