When it comes to investing, traditional considerations include risk and return, taxes, inflation, dividends, and diversification.
But, these days, investors want more. Many want to feel like they are promoting a cause that they care about.
Corporations and investment firms are meeting that need, either by implementing corporate sustainability programs or offering specific investment products.
When it comes to investing, traditional considerations include risk and return, taxes, inflation, dividends, and diversification.
But, these days, investors want more. Many want to feel like they are promoting a cause that they care about.
Corporations and investment firms are meeting that need, either by implementing corporate sustainability programs or offering specific investment products.
Once a niche, socially responsible investing (SRI) has become increasingly mainstream over the last 20 years. As of 2018, there were $12 trillion invested in socially responsible ways, a 38 percent increase since 2016 according to the US SIF Foundation’s first biennial Report on US Sustainable and Impact Investing Trends, which published its first report in 1995.
In large part, the growth in SRI is due to performance data and research that have demonstrated that socially responsible investors receive superior absolute returns. These solid returns make SRI an even better bet.
What is Socially Responsible Investing?
SRI is “the act of choosing your investments on the basis of social good as well as financial gain.” Socially Responsible Investing supports goals such as a cleaner environment, social justice, peace, health, and mortality, depending on the investor’s values and interests.
In 1982 Trillium Asset Management became the first devoted to SRI. Since then, the industry has grown exponentially.
Consider that in 2007, the European Investment Bank issued its first green bond in the form of an EUR 600 million equity index-linked security. The next year, the World Bank introduced something similar. By 2017, the amount of public and corporate green bonds reached $155 billion.
The success of green bonds has been so successful that the Seychelles government launched the first blue bond—” “a pioneering financial instrument designed to support sustainable marine and fisheries projects.”
From environmental protections to gun violence and gender equality, more asset managers and firms are interested in social issues than ever before. Top criteria for money managers in 2018 include climate change/carbon ($3.00 trillion), tobacco ($2.89 trillion), conflict risk ($2.26 trillion), human rights ($2.22 trillion), and transparency and anti-corruption ($2.22 trillion).
How to Invest the SRI Way
There are four primary methods that investors use to invest: negative screening, positive investing, community investing, and shareholder action. The first, negative screening, is the most passive and the last, shareholder action, is arguably the most drastic.
- Negative screening. Are you passionate about health? As an investor, you can skip over companies that sell tobacco products or support the tobacco industry. Are you committed to a cleaner earth? As an investor, you can decide not to invest in fossil fuels or companies with an egregious carbon footprint. Negative screening essentially rules out companies that support or promote a practice that an investor doesn’t agree with.
- Positive Investing. More information is available today than ever before about a given company’s sustainability and social efforts. These days, most S&P 500 firms issue a sustainability report that ranks various environmental, social, and governance (ESG) metrics. These allow investors to actively screen for companies that promote specific values.
- Community Investing “involves allocating investments to support low-income and other underserved communities with capital, credit, and training.” Although unconventional, this sector is growing. The community investing space grew more than 50 percent from 2016 to 2018, according to the US SIF: The Forum for Sustainable and Responsible Investment. Oftentimes, community investing involves investing in banks or credit unions that are designated as Community Development Financial Institution (CDFI). This designation means that the institution offers “credit, capital, and financial services to organizations engaged in work that benefits low-income communities.”
- Shareholder Action uses dialogue, shareholder resolutions, and divestment campaigns as tools to improve a corporation’s social and environmental sustainability performance. Typically, if dialogues and resolutions don’t work, shareholders may choose to sell off company stock. This can be used as a leverage and is typically only done as a last case scenario.
Perhaps the easiest route to SRI is by investing in funds with designated themes.
For example, the SPDR SSGA Gender Diversity Index ETF (SHE) invests in companies that “are leaders within their respective industry sectors in advancing women through gender diversity on their boards of directors and in senior leadership positions.” The fund’s top 10 holdings all have multiple women on their boards and include: Visa (V), Home Depot (HD), Johnson & Johnson (JNJ), PayPal Holdings (PYPL), Wells Fargo & Co. (WFC), Texas Instruments (TXN), Walt Disney Co. (DIS), Netflix (NFLX), Coca-Cola Co. (KO) and Gilead Sciences (GILD).
SRI is a win-win, with returns and just the right amount of “feel good” that comes from knowing that you are an informed investor supporting causes that you care about.
Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Try it for yourself today.
This blog is sponsored by Magnifi. The information and data are as of the publish date unless otherwise noted and subject to change. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. [As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer, custodian, investment advice or related investment services.]
