“John Wesley, the founder of the Methodist movement, urged his followers to shun profiting at the expense of their neighbors. Consequently, they avoided partnering or investing with those who earned their money through alcohol, tobacco, weapons or gambling – essentially establishing social investment screens.”The social investment screens referenced here can be positive or negative. A negative screen would mean avoiding companies that deal in alcohol, tobacco, weapons, gambling, fossil fuels, or any other controversial enterprise. A positive screen would lead to heavier investments in companies with diverse leadership teams, a commitment to clean energy, strong fair labor practices, or other desirable policy.
There are many different approaches to SRI1. You can choose to eliminate certain industries or companies completely. For example, some investors want to avoid any ownership at all in gun manufacturers or fossil fuels. 2. Perhaps you don’t want to avoid an industry altogether, but you want to invest in the companies within that industry with the most sustainable practices. For example, you want some exposure to the oil and gas sector for diversification’s sake, but you want to avoid companies that have had major oil spills or that have drilled in sensitive regions. 3. Another way to have a meaningful impact is to actively participate in proxy voting as a shareholder. You can propose initiatives or vote on the ones that others propose. Real changes are made at the corporate level due to these initiatives.
SRI is getting easier as the field growsFund managers and investment companies have responded to growing interest in SRI by establishing many new low-cost ETFs (exchange-traded funds) and mutual funds with a focus on sustainability. We use many of these funds in SRI portfolios for our clients. Some of these funds are designed to track an index but exclude certain companies with environmental, social, or governance risks. If you follow a prescribed asset allocation for your risk tolerance and time horizon, you may be able to just substitute certain SRI funds for those that are already in your portfolio. Here is an example of two conventional ETFs from BlackRock iShares funds family, and their ESG counterparts. As you can see, the returns are substantially similar. What would you include in your Impact Investing Policy Statement? What would you avoid in your portfolio if you could? What would you like to invest in more heavily? We would love to work with you to help you align your investments with your values. For more about our investment management practice, click here.
Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations may vary. Therefore, this information should be relied upon when coordinated with individual professional advice.