I remember about 20 years ago I had a conversation with a new client, and they wanted to know what types of companies a particular mutual fund invested in. Among the top 25 holdings in the fund were 2 tobacco stocks. The client asked if they could remove those and a list of other companies that were in industries that did not align with the client’s values. At the time, there were not many easy ways to do that other than building your own portfolio of stocks instead of buying a mutual fund (before ETFs became popular). I remember thinking that while I had never been asked that question before, I wondered how many people would like to invest with their conscience given the chance.
Fast forward 20 years and socially responsible investing has become commonplace in the world of investing. So what is socially responsible investing? It is the intent to invest for a profit while also considering factors such as environmental protection, social justice, or ethical considerations. Most socially responsible investing or SRI began simply as an avoidance to the “sin” stocks, including alcohol, tobacco, firearms. Today, SRI can include considerations towards the environment (green energy, green transportation, climate protection, clean water), avoid stocks that aren’t in line with your values, invest in local community or even in lending to small businesses or students. There are dozens of options for ways in which to invest in a socially responsible way. SRI options number well over 800 different choices and amount to over $17 trillion dollars. (ussif.org)
If SRI isn’t something you’ve ever thought about before, you may find yourself thinking about it more now. What I typically suggest is that clients look at the idea from two different sides. First, while it’s easier than it used to be to follow an SRI plan, it still isn’t always the easiest way to invest not the most profitable (though performance is much better than it used to be). That said, do you want to focus your investments to match your values, or would you prefer to leave the investments to themselves and instead use those profits in order to directly support the organizations that you are most passionate about? There is no wrong answer to the question, simply a preference on how you want your money to make the biggest impact.
There are a number of investment companies that have a policy of encouraging socially responsible or ethic policies for the companies that they invest in. As you can imagine, with trillions of dollars under management, these fund companies are able to exert a good amount of influence over corporate governance to encourage ethical behavior. More investment companies are starting to move in that direction. The ways in which these investment companies get involved in these policies include, exclusion of certain companies or industries, active management including board seats, etc. in the companies themselves.
A word of caution is to do your research before making an SRI investment. While many SRI investments can be solely focused on the intended mission, many funds may simply call it a “consideration” which may or may not have any real meaning behind it. I suspect since SRI is a new “buzzword” that a good portion of the extreme growth in SRI investments over the last few years may be an attempt to get on the SRI bandwagon vs. truly focusing on making SRI’s.
T. Eric Reich, CIMA, CFP, CLU, ChFC is president and founder of Reich Asset Management and can be reached at 609-486-5073 or email@example.com.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.