Socially Responsible Investing
You may have a social cause that you feel passionate about and one that you may even support from time to time. There may be other issues that you care about that you don’t know quite how to help support. There may also be industries that you don’t agree with and you’d rather not support. If you have a 401k or invest in the market, you may be indirectly helping industries that don’t align with your personal values.
So, what’s the answer? Back in the 1980s, Socially Responsible Investment or SRI mutual funds were developed back. SRI funds are designed to screen out certain company engagements such as firearms production, tobacco, gambling or environment damage. Additionally, some investment firms engage in ESG (Environmental, Social and Governance Practice) investing. There are a wide range of ESG factors that are considered when an ESG manager selects a company to invest in.
Here is a breakdown of each factor:
What about Performance?
It may be a goal to invest along with your values, but does that mean that your investments will keep pace with traditional investment options? Traditionally, there was a lag in performance between SRI funds and traditional investments. Whenever you chose SRI investing, that meant potentially giving something up for yourself in order to invest based on your principals.
While past performance is no guarantee of future results, as SRI and ESG investing has evolved, the performance gap has decreased and, in some instances, ESG funds have outpaced key indices. In the chart below*, the Large Cap ESG funds that comprise this portfolio have outperformed the S&P 500 index.
When evaluating your investment options, you may only want to screen out one factor such as firearms and in most instances, you would be able to do that. Overall, it’s important to research the fund or ETF to understand what screeners the fund manager uses to ensure that they algin with your principals and your values.
With SRI and ESG investing, you can make a difference with your dollar by supporting companies that believe in the greater good and making a positive impact.
Sources:
*https://seekingalpha.com/article/4191051-investment-insights-esg-spans-portfolios
8814716.1 EXP 3/28
