Environmental, Social and Governance: Aligning Investment Choices with Social Causes

We all have social causes that we care about. But there can sometimes be divergence in the causes we care about and our investment decisions. This does not have to be the case. As investors, we can consider both financial return and social good, giving us a chance to support the causes we care about, while diversifying our investment portfolios.

A Rich History

Investing for social good has a rich history dating back thousands of years, as people have long invested based on their values. In the United States, this investment approach dates back to the mid-1700s, when the Quakers refused to invest in any aspect of the slave trade and avoided investing in companies involved in the liquor, tobacco or gambling industries—the so-called Sin Stocks.

Fast forward to the 1980s, and shareholders, citing their opposition to apartheid-ruled South Africa, convinced U.S. companies to withdraw from South Africa, which fueled an international boycott that brought about change and helped lead to fair elections.

One in Three Dollars Is ESG-managed Today

By assessing potential investments using environmental, social and governance (ESG) criteria, along with financial performance metrics, investors can assign “points” to companies whose practices align with their values. More points translate to a higher weighting in the target portfolio. The ESG market is huge in the U.S. and around the world. According to the Forum for Sustainable and Responsible Investment, one out of every three dollars under professional management in the United States is involved in ESG.1

The ESG Criteria

In general, socially conscious investors seek to encourage corporate practices that promote religious beliefs, environmental stewardship, consumer protection, human rights or diversity. Money managers are incorporating ESG criteria into their investment analysis and decision-making. ESG criteria can also be used to limit investment in areas that conflict with the investor’s values.2

Different Terminology, Same Idea

As you can surmise, there are as many approaches to Socially Responsible Investing as there are SRI investors, who may refer to SRI as:

  • Community investing
  • Ethical investing
  • Faith-based investing
  • Green investing
  • Impact investing
  • Mission-related investing
  • Sustainable investing
  • Values-based investing

Things to Think About

Ruling out companies for practices that you disagree with does occasionally result in diminished profits. It is important to remember that environmental and social screens might result in leaving money on the table. Further, as in all investing, having a broad diversification of your investment portfolio is always important. 

Investing according to your conscience can turn your portfolio into a powerful agent for change you believe in.

If you are interested in socially responsible investing, let us know. We are here to help.

 

 

1 Forum for Sustainable and Responsible Investment. “SRI Basics.” https://www.ussif.org/sribasics. Accessed July 2021.
2 US | SIF Foundation. “Report on US Sustainable, Responsible and Impact Investing Trends 2018.”https://www.ussif.org/files/Trends/Trends 2018 executive summary FINAL.pdf. Accessed July 2019.

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General

This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors. The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

Risk

Investments carry a certain degree of risk, principal loss is possible and there is no assurance that an investment will provide positive performance over any period of time. Past performance is no guarantee of future results. In addition, because ESG investment strategies select securities for inclusion based on environmental, social, and governance (ESG) criteria, these investment strategies may forgo some market opportunities available to investment strategies that do not use these criteria, which may have a negative impact on the investment performance of ESG investment strategies.

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