Investing With Your Values

Posted on Wednesday, March 4, 2015

Published in Personal Capital, View Original Article

by  Rebecca Jackson

Why do you invest?

For most people, the answer is probably simple-investing is the best way to build wealth for the long-term. But have you ever considered investing as a means to express your personal values and a way to improve social and environmental outcomes? Chances are, given numerous investor surveys suggesting as much, you have.

Traditionally, investing to build financial wealth and allocating funds for social issues have been separated. We put money into stocks, bonds and other investment vehicles exclusively to generate financial returns, while we make philanthropic donations to charities and non-profits that support causes we care about. This demarcation has also been evident in the behavior of private foundations. Such institutions offer grants from a portion of their capital to organizations that align with their mission and invest the remainder (often the vast majority of their funds) in the public and private markets.

However, the result can often be a misalignment between the bulk of a foundation's capital and its social mission, and some institutions are taking action. Take, for example, the Rockerfeller Brothers Fund, which recently announced its plan to divest from fossil fuels (the irony that the fund's wealth was built on oil was noted). Given the fund's present focus on clean energy technologies and other strategies that reduce the impact on climate, holding millions of dollars of fossil fuel investments contradicts its mission, hence the decision to divest.

Despite historic concerns about forgoing financial returns when investing in alignment with mission and values, evidence increasingly points to opportunities that successfully combine both, irrespective of whether you're a big foundation or an individual investor with limited capital.

Sustainable, Responsible and Impact Investing for Beginners

Finance is infamous for its jargon and acronyms, and the evolving sphere of "Sustainable, Responsible, and Impact Investing (SRI)" is no different. The Forum for Sustainable and Responsible Investment (US SIF), a membership organization for practitioners and institutions, defines SRI as "an investment discipline that considers Environmental, Social and Corporate Governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact."

As this area is still developing, the terminology can be confusing. However, it is probably inaccurate to label SRI a niche. Indeed, according to US SIF, the total US-domiciled assets using SRI strategies increased 76 percent between 2012 and 2014, from $3.74 trillion to $6.57 trillion. Since US SIF first began tracking these trends in 1995, the SRI universe has grown ten times in size.

The History, Current State and Future of SRI

First Affirmative Financial Network, an SRI investing specialist since 1988, traces SRI's beginnings back to biblical times. However, today's landscape is rooted in the social movements of the 1960s and 1970s. During that period, socially conscious citizens began addressing the issues of the day, including the civil rights movement, women's equality, anti-Vietnam War sentiments, and the labor movement via their investments and, importantly, the sectors and companies in which they chose not to invest. More recently, SRI has evolved to include investing strategies that deeply integrate ESG factors as a means to identify companies that will perform better over the long-term, as well as those that can contribute to environmental sustainability.

To illustrate the different aspects of SRI, Bridges Ventures created a "Spectrum of Capital" map, which depicts the SRI market as a range of investment opportunities spread out between financial return-only investments and impact-only philanthropy. Many "Impact-first" investments are private investments and therefore generally only available to accredited investors, family offices and institutions. Such investments may incur tradeoffs with financial returns. However, there is a fast-growing universe of SRI mutual funds that seek competitive returns, that is available to retail investors. According to US SIF, such mutual funds numbered 456 in 2014, up from 333 in 2012. Total assets under management grew to $1.93 trillion from $641 billion, representing an increase of more than 200 percent.

As the President of First Affirmative, Steve Schueth noted, the proliferation of SRI funds and the entry of more traditional firms to this market is testament to SRI's ability to drive financial returns alongside social responsibility. Further, recent research from TIAA-CREF compared five U.S. equity SRI indexes that had performance history of 10 years or more with the Russell 3000 and S&P 500 indexes. It concluded that, although there was variability in performance over the short-term, over the long-term " SRI indexes achieved…performance similar to broad market benchmarks while pursuing social goals."

Looking ahead, trends unequivocally indicate that SRI will continue to grow. A looming wealth transfer of $41 trillion to millennials, of which 70% is expected to go to women, points to significant growth in demand. These are demographics that have indicated strong desires to align their investments with social and environmental interests.

So You Want to Invest With Your Values?

If investing alongside your values is something that you're interested in, identifying what you care most about is a good first step. Are you keen to exclude certain companies and industries from your portfolio, or do you want to invest with a specific outcome in mind? Once you have more clarity on these questions you can begin to look into opportunities that are available to you that  align with your overall financial plan, and your investable assets.

One place to start is the US SIF website, which lists sustainable and responsible mutual funds offered by its institutional member firms, as well as the respective account minimums, fees, performance, and the applicable screens and ESG themes they employ. Some account minimums are as low as $250 and a significant number have an account minimum of $1,000. The list includes funds from providers such as TIAA-CREF, Pax, Domini, Parnassus, and Calvert, of which several are index funds. The Calvert Social Index A fund, for example, reported a return of 13.75% for 2014 compared to 13.69% for the S&P 500 (source: Morningstar).

Another option to consider is ETFs - ETF database tracks five SRI ETFs currently listed on U.S. exchanges. 

If you work for a company that provides a 401(k) plan or equivalent, enquire whether SRI selections are on offer. Providers of these plans are reporting an increase in demand for SRI funds, so if none are available make sure to ask your provider when they intend to start including them.

Additionally, don't forget that holding just one (voting eligible) stock in a publicly traded company enables you make an impact by actively engaging in the shareholder ownership process. As a shareholder you're entitled to attend the Annual General Meeting ("AGM"), or send a proxy, and vote on resolutions. Eligible shareholders can also introduce resolutions of their own to be voted on at the next AGM. To do so, you must have owned at least $2,000 worth of shares for at least the year preceding the resolution-filing deadline. While the effect of a single shareholder's vote is very limited, remember that large corporations make far-reaching impact when they do change their behavior, and that change often results from concerted pressure from shareholders, consumers and other sources. Per shareholder advocacy organization, As You Sow, "shareholder advocacy efforts have resulted in an unprecedented paradigm shift in the behavior of both shareholders and company management that is creating a new environmentally sustainable economy."

As you can see, investing needn't be a siloed activity focused solely on financial returns. Alongside building wealth to enjoy the long-term, investing can also be about financing the world you want to live in.

Rebecca Jackson is a former investment banking professional turned independent consultant, advisor and freelance writer. She left Wall St in 2011 to embark upon a process of career discovery and now works with sustainable, responsible and impact finance companies, and finance professionals seeking career reinvention. She lives in Boulder, CO where she enjoys climbing, biking and skiing. Follow Rebecca on twitter @RoamingBrummie & @AfterWallSt.