Socially Responsible Investing


Socially Responsible Investing (SRI) goes by many names – Sustainable, ESG,  green, or ethical investing – and has both financial and social change goals. Based on the interest of a significant number of my clients, I have developed a passion for this sub-specialty of investment management.  At its most simple, the SRI  movement is an effort to encourage publicly traded companies to be better corporate citizens – to look out for the common good as well as for their bottom line. Socially responsible investors encourage corporate practices that promote consumer and worker protection, human rights, environmental stewardship and diversity of leadership. There are parallel efforts in funds that follow a variety of religious priorities in choosing which companies to invest in. I do not offer religious-values tailored portfolios, but rather those that address a wide range of ESG issues.

The 3 focus areas of SRI have come to be known as ESG – Environmental, Social and Corporate Governance – referring to the three central factors in measuring the sustainability and ethical impact of an investment in a company or business. More and more mainstream investment research has been poured into evaluating the ESG or sustainability index of companies and investment funds. There is increasing acceptance that companies that pay attention to the “double bottom line” – profits and social impact – out-perform companies that are fixated only on profits without concern for any positive impact, particularly during difficult economic times.

As an example, companies who take the issue of climate change seriously, who are both seeking to prevent the worst of it and planning to mitigate the effects in advance, might be stronger performers as the climate shifts become larger. There are similar arguments in the areas of human rights, animal welfare, consumer protection and other Social areas. Companies with superior Governance – strong workplace policies that reward the engaged employee, a Board with diverse points of view, responsible environmental policies that avoid lawsuits, etc.– may out-perform irresponsible companies with a demographically homogeneous governance body, and a discouraged workforce.   An ethically run business is better for everyone.

What we have learned over the last decade of experience and research that taking these factors into consideration when creating a fund or portfolio does not have to impact the financial performance negatively, despite the assumption (and earlier evidence) that it would. The longest-running SRI index, the Domini 400—now the MSCI KLD 400—was started in May 1990. It has continued to perform competitively —with favorable annual total returns compared the S&P 500 (article).

In addition to those funds who seek the better-run companies through both positive selection and screening criteria, we are also interested in the fund families that do a good job of shareholder activism – taking a position in a company with some merits, but some problematic activities, and working to push the company towards better policies at shareholder meetings.  Some of the fund families that engage in shareholder activism include Calvert Funds (now owned by Eaton Vance), Domini, Green Century, and Pax World  (article)