Are your investments in line with your values?

Exploring Socially Responsible Impact Investing

“Cease being intimidated by the argument that a right action is impossible because it does not yield maximum profits, or that a wrong action is to be condoned because it pays.” – Aldo Leopold

Do you prefer to invest according to your values?

How are the companies you invest in impacting our society and environment? In the 1970s, during the Vietnam War and apartheid in South Africa, investors tried to prevent their money from supporting policies they did not agree with. Since then, sustainable, responsible and impact investing has continued to evolve and incorporate modern day concerns, with some investors choosing to invest in companies that align with their own ethics and beliefs, and other investors avoiding companies that don’t have ethical business practices, products, or services.

According to the US SIF Foundation, Environmental, Social, and Governance (ESG) investing has grown to $12 trillion in the United States, up 38% from $8.72 trillion in 2016, and up by over 200% in the past decade. Today, many businesses, foundations, hospitals, colleges, universities and individuals continue to encourage investment strategies that incorporate responsible business and environmental practices.

What is Socially Responsible Impact Investing?

Socially Responsible Impact Investing is for those who want a personal connection with their investments, and want to invest their money in companies that can accelerate a positive social change in specific areas. Mission-related, sustainable, responsible and green investing are examples of the terms used to describe a Socially Responsible Investment (SRI) strategy. Some mutual funds can offer socially-conscious investment options. The funds can be domestic, international, global or broad-based investing in multiple sectors, from green bonds and equities to balanced funds. Part of a mutual fund company’s SRI strategy is to incorporate ESG factors in their analysis of potential portfolio holdings. ESG factors include issues like climate change, human rights, clean water and energy, and business ethics. An ESG analysis is a way for companies to not only be screened based on finances, but on specific measures that can have a positive impact on society.

Below are examples of ESG criteria used by Sustainable Investors according to the US SIF Foundation:

• ENVIRONMENTAL: Green Building/Smart Growth; Climate Change/Carbon; Clean Technology; Pollution/Toxics; Sustainable Natural Resources/Agriculture; Water Use and Conservation
• CORPORATE GOVERNANCE: Corporate Political/Contributions; Executive Compensation; Board Diversity; Anti-Corruption Policies; Board Independence
• SOCIAL: Workplace Safety; Labor Relations; Workplace Benefits; Diversity and Anti-Bias Issues; Community Development; Avoidance of Tobacco or Other Harmful Products; Human Rights

Morningstar, an independent investment research firm, partnered with Sustainalytics to launch the Morningstar Sustainability Rating for more than 20,000 mutual funds and exchange-traded funds (ETFs). There are two components to their rating: the ESG scores developed and assigned by Sustainalytics and ESG controversies. Each company is assigned a score from 0-100. A score of 50 is considered average when compared to its peer group.  MSCI, an industry –leader for financial data, is another data gathering resource used by many financial institutions. Not all money managers and financial institutions use the same criteria. There are fund companies that may invest solely in one particular category, such as human rights, for instance.  Before investing, consider what ESG issues are important to you, whether it is an ethical concern, has environmental impact or both. There are many options available to meet your investment philosophy.

A common misconception in SRI performance 

In 2017, Nuveen released a study that found “no statistical difference in returns compared to broad market benchmarks, suggesting the absence of any systematic performance penalty. Moreover, incorporating environmental, social and governance criteria in security selection did not entail additional risk.” SRI does not require forgoing competitive returns. In fact, investing in businesses that want to positively impact society may provide you with a competitive return, while shaping the world for generations to come. Investors should be aware that a lack of diversification within a portfolio may limit returns.

Getting started 

When researching investment options, consider investing in companies who share your viewpoints on the ESG factors above, as well as a number of other categories that impact society today and in the future. Socially responsible investment options may be available in your 401k plan; check with your employer’s human resources department. Many larger plan administrators have SRI options available as well.

About Chelsea Groton Financial Services

Investment and insurance products and services are offered through Osaic Institutions, Inc., Member FINRA / SIPC. Chelsea Groton Financial Services is a trade name of Chelsea Groton Bank. Osaic Institutions and Chelsea Groton Bank are not affiliated. Products and services made available through Osaic Institutions are not insured by the FDIC or any other agency of the United States and are not deposits or obligations of nor guaranteed or insured by any bank or bank affiliate. These products are subject to investment risk, including the possible loss of value.

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