Sustainable investing allows investors to align their investments with their beliefs, values and lifestyle. It is for people who care about global warming, clean water, preserving natural resources, excessive executive pay, how companies treat their workers, energy efficiency, income inequality, and other issues affected by corporate actions.
Add A Critical Layer of Analysis to Investment Decisions
In addition to financial and economic analysis, managers consider a company’s approach to environmental, social and governance (ESG) issues. These are ethical issues, but also factor into investment risk. The value of companies responsible for disasters such as major oil spills or fatal factory fires declines due to related liabilities and negative publicity. Companies that abuse their workers, customers, communities, or the environment create potential liabilities that can reduce their value over time. Such companies may also be damaging our social and environmental infrastructure and putting future generations at risk.
Shareholder Advocacy
Sustainable investing influences corporate behavior through shareholder advocacy. Shareholders, when mobilized, can push companies to be better corporate citizens. Through divestment, shareholders helped free South Africa from apartheid; shareholders have pushed reforms requiring companies to submit CEO compensation for shareholder votes; shareholders recently got the largest palm oil producer in the world to implement policies to stop replacing rain forest with palm plantations and protect the rights of workers and communities. There are countless more examples. Many sustainable mutual funds and investment managers actively push companies to adopt better environmental, social and governance practices.
Community Investing
Community investing helps direct capital to underserved communities. This is primarily accomplished through the bond side of the portfolio as bonds are essentially loans made by the investor. Community investing can include helping to fund affordable housing, economic development, small business lending, and community services.
Fossil Fuel Free Portfolios
These portfolios are for investors who do not want to own companies heavily involved in fossil fuel extraction (coal, oil, gas). Some investors choose a Fossil Fuel Free portfolio because they do not want to own the largest carbon producers. Others have financial reasons: they believe that such companies are overvalued because the U.S. is moving away from a carbon-based economy.
SRI Investing Performance
Does sustainable investing sacrifice portfolio performance? The answer is no.
Since its inception in 1999, through 2018 the MSCI KLD 400 Social Index has had an average annual return of 9.84%, while the S&P 500 TR Index (its peer, non-social index) has had a slightly lower average annual return of 9.61%.
Numerous academic studies, as well as analyses by Morningstar and Forbes, have concluded that it is “surprisingly difficult to prove that social screens make any significant long-term difference to investment returns” (Morningstar, “Social Responsibility and Fund Performance,” March 12, 2012). Note that indices are not available for direct investment.
Thanks to careful selection of investments by expert SRI portfolio managers, you will have a diversified portfolio that reflects your values and gives you an opportunity to build your financial security while contributing to the security of future generations.