Investing With a Conscience

10/20/2012 7:00 AM

Ma ny investors have strong opinions that don’t involve their views on interest rates and stock prices. This might include support for a clean environment or concern for the poor and the disadvantaged — just to mention a few well- known causes. Increasingly, these investors want their investment holdings to reflect their social, ethical or religious values. They wish to avoid companies that profit from activities they oppose, and support companies that behave in ways they consider appropriate or responsible. At the same time, however, most investors still want or need to earn a reasonable return on their portfolios.

Socially responsible investing (“SRI”) seeks to reconcile these two objectives by helping investors create diversified portfolios designed to deliver an acceptable level of performance, while at the same time excluding companies that don’t meet their ethical standards. SRI investing recognizes that corporate responsibility and societal concerns are an important part of many investment decisions — particularly with the world’s increased focus on sustainability and climate change, among others. SRI investors encourage corporations to improve their practices in environmental, social, and governance issues. You may also hear SRI-like approaches to investing referred to as mission investing, responsible investing, double or triple bottom line investing, ethical investing, sustainable investing, or green investing.

Increasing Interest

Over the last several decades many investors have shown an increased appetite for social investing. The Social Investment Forum, a nonprofit group that promotes socially responsible investing, calculates the total number of assets under professional SRI management rose from $629 billion in 1995 to more than $3 trillion in 2011. In fact, the Forum estimates that one out of every eight dollars under professional management in the U.S. today — or 12.2 percent of the $25.2 trillion in total assets under management tracked in Nelson Information’s Directory of Investment Managers — is involved in socially responsible investing.

Why has socially responsible investing gained in popularity? One of the reasons may be that investors posed themselves a question similar to this one: while my number one investment goal will always be to create a properly diversified portfolio based on my personal risk tolerance levels, how can I also do a bit of good for the environment, for the world, or to improve the condition of mankind?

A second reason for SRI’s popularity is that some of the nation’s most prominent institutional investors have increasingly added a social focus to their investment decisions. These institutions, many with significant assets and often with great public, political and media clout, frequently carry both a big stick and use a loud voice. Some have become well known advocates for social issues and this is often carried out through their investments in socially-responsible projects. An example is found in the California Public Employees’ Retirement System (CalPERS), one of the world’s largest public pension funds. CalPERS previously announced support for the United Nation’s Principles for Responsible Investment, a menu of possible global actions on environmental, social and corporate issues.

A third reason for increased interest in SRI is the simple fact that it’s now much easier to access professionally managed SRI vehicles. Many investment firms have created specific investment processes that exclude companies that, in the investor’s view, focus on non-socially responsible or acceptable activities. Once these decisions have been made, the manager constructs a diversified portfolio within the desired constraints. The goal is to deliver performance consistent with the investor’s return objectives and tolerance for risk.

Structuring investments consistent with social, environmental or ethical objectives offers investors a way to align their portfolios with their own objectives. Contact your financial advisor if you have an interest in SRI investing and would like to learn more about how to incorporate an SRI approach into your strategy.

Editor’s Note: Kevin J. Smith is the grandson of the late Walter J. Smith, a skilled farmer and investor from Fawn Grove, Pa. to whom this column is dedicated. He is first vice president-wealth management with Janney Montgomery Scott, LLC. Kevin can be reached at (800) 999-0503, or via email at kevinsmith<\@>janney.com.


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9/21/2014 | Last Updated: 4:01 PM