We all have social causes that we care about. But there can sometimes be divergence in the causes we care about and our investment decisions. This does not have to be the case. As investors, we can consider both financial return and social good, giving us a chance to support the causes we care about, while diversifying our investment portfolios.
A Rich History
Investing for social good has a rich history dating back thousands of years, as people have long invested based on their values. In the United States, this investment approach dates back to the mid-1700s, when the Quakers refused to invest in any aspect of the slave trade and avoided investing in companies involved in the liquor, tobacco or gambling industries—the so-called Sin Stocks. Fast forward to the 1980s, and shareholders, citing their opposition to apartheid-ruled South Africa, convinced U.S. companies to withdraw from South Africa, which fueled an international boycott that brought about change and helped lead to fair elections.
One in Three Dollars Is ESG-managed Today
By assessing potential investments using environmental, social and governance (ESG) criteria, along with financial performance metrics, investors can assign “points” to companies whose practices align with their values. More points translate to a higher weighting in the target portfolio.
The ESG market is huge in the U.S. and around the world. According to the Forum for Sustainable and Responsible Investment, one out of every three dollars under professional management in the United States is involved in ESG.1
The ESG Criteria
In general, socially conscious investors seek to encourage corporate practices that promote religious beliefs, environmental stewardship, consumer protection, human rights or diversity. Money managers are incorporating ESG criteria into their investment analysis and decision-making. ESG criteria can also be used to limit investment in areas that conflict with the investor’s values.2
Different Terminology, Same Idea
As you can surmise, there are as many approaches to Socially Responsible Investing as there are SRI investors, who may refer to SRI as:
• Community investing
• Ethical investing
• Green investing
• Impact investing
• Mission-related investing
• Sustainable investing
• Values-based investing
Things to Think About
Ruling out companies for practices that you disagree with does occasionally result in diminished profits. In fact, a good financial advisor will warn investors that their environmental and social screens might result in leaving money on the table. Further, as in all investing, having a broad diversification of your investment portfolio is always important. Most financial advisors will therefore recommend mutual funds that cater to socially responsible principles for this reason. For example, investors who see global climate change as a significant business and investment risk can consider investing as part of the portfolio in environmentally conscious companies. Investing according to your conscience can turn your portfolio into a powerful agent for change you believe in. If you are interested in socially responsible investing, ask your financial advisor to help you find investments that match your values.
Ballast Advisors is a fee-based financial planning firm. Our financial advisors serving the Twin Cities and Southwestern Florida can help you reach your retirement and financial goals. Our offices are located in Woodbury, MN, Arden Hills, MN and Punta Gorda, FL.
1 Forum for Sustainable and Responsible Investment. “SRI Basics.” https://www.ussif.org/sribasics. Accessed July 2021. 2 US | SIF Foundation. “Report on US Sustainable, Responsible and Impact Investing Trends 2018. ”https://www.ussif.org/files/Trends/Trends 2018 executive summary FINAL.pdf. Accessed July 2019.
IMPORTANT DISCLOSURES The opinions expressed herein are those of Ballast Advisors, LLC and are subject to change without notice. The third-party material presented is derived from sources Ballast Advisors consider to be reliable, but the accuracy and completeness cannot be guaranteed. Past performance is not indicative of future results. Nothing contained herein is an offer to purchase or sell any product. This material is for informational purposes only and should not be considered investment advice. Ballast Advisors reserve the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Ballast Advisors, LLC is a registered investment advisor under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about the firm, including its services, strategies, and fees can be found in our ADV Part 2, which is available without charge upon request.
