Socially Responsible Investing (SRI) has come a very long way in recent years. If you have ever wondered about the possibility of aligning your personal values with your investments, now is the time to take a serious look at this fast growing segment of the market.
Many of you may remember the early years of Socially “Conscious” Investing when the main goal was to screen out “sin stocks”, companies in industries that an investor might not want to support like gambling, tobacco, alcohol and others. The new SRI, sometimes referred to as “Impact” investing, attempts to find companies that are not just in industries that are doing no harm (screening out), but ones that are actually having a positive influence on the environment, human rights issues, fair trade, gender equity, ethical management, etc. Another beneficial development of this strategy is that these types of companies can also be very profitable investments!
You might be thinking, this sounds well and good, but you’ve always heard that to invest responsibly you must pay more in fees and probably leave returns on the table. That was the message I communicated to my clients when I worked with some of the larger firms and it is still the standard line being fed to those advisors even though the numbers don’t add up.
Two comprehensive reports (CFS Articles/Reports:featured), one from Morgan Stanley and the other from the US Sustainable Investment Forum (US/SIF) offer the following statistics that might turn the heads of even the most pragmatic investors. In 2014 $1 out of every $6 in the US under professional management was invested in some form of sustainable investment, primarily in public equities – nearly $6.7 trillion. The number of mutual funds incorporating environmental, sustainable, corporate governance (ESG) criteria into their research has grown from 260 in ‘07 to 925 in ‘14. Total dollars invested in SRI in the US rose 76% between 2012 and the beginning of 2014! Popular demand, not only to care for people and the environment, but demand for investment choices is increasing investor’s options, reducing costs, and allowing investors to take advantage of this strong momentum.
Growth in the sector is good, but what about returns? Just last year a new SRI index was launched that is “designed to offer investors enhanced exposure to securities meeting sustainability investing criteria while maintaining a risk and performance profile similar to the S&P 500”. Not only is this significant because it confirms increased demand for SRI, but the index returns (chart below) are not only in-line with the S&P 500 but have outperformed at the 5 year mark!
In the Morgan Stanley 2015 SRI report an older SRI index, the MSCI KLD 400 Social Index, was used. Since its inception in July of 1990 it outperformed the S&P 500 on an annualized basis achieving a return of 10.14% compared to 9.69% for the S&P 500 as of the date of the report. Morgan Stanley also noted that after evaluating 13,102 mutual funds & separately managed accounts, “investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments. This is on both an absolute and risk-adjusted basis, across asset classes and over time.”
These investment returns and asset growth numbers strongly indicate that we may have entered a period when investors do not have to choose between the causes they support and the performance they need to reach their financial goals. If this information is enough for you to move off the fence regarding SRI, you can find valuable tools to begin aligning your portfolio with your values at Social Funds (http://socialfunds.com/ ) and on the US Sustainable Investment Forum (http://www.ussif.org/ ) websites. You can also find more on this topic at our blog, SRIBend.com.
Jack Schniepp CFP®, ChFC® is the owner of Cascade Financial Strategies (CFS). Currently CFS is the only Central OR member of the US Sustainable Investment Forum (US/SIF). You can find out more about the company and their blog at sribend.com.