It used to be fairly simple to pick companies considered socially responsible investments. All an investor had to do was avoid business associated with alcohol, tobacco, weapons and gambling.
That approach to ethical investing would greenlight just about any company involved in health care or technology with little or no regard for how the company conducted business, treated employees or dealt with the environment.
“Today, responsible investing takes a more sophisticated approach,” said Jonathan Bernstein, a senior research analyst at the Downtown-based Hefren-Tillotson wealth management firm. “It says every company is different. There are good and not so good companies within each industry.”
Now investors look at each one individually and ask questions, Mr. Bernstein said. “How do they treat their employees? Are they transparent or ethical in the way their board is running? Are they diverse on their boards?”
The Global Sustainable Investment Alliance reports that more than $22 trillion of assets in 2016 were managed under ethical investment strategies globally, up 25 percent from two years before — a strong indicator that socially responsible investing is moving into the mainstream.
Responsible investing goes by several names, such as socially responsible investing, ethical investing, sustainable investing and green investing.
While individual stock investors can do a lot of their own research, they may find it easier to invest through exchange-traded funds or mutual funds focused on socially responsible companies.
Then it’s a matter of deciding what issues they care most about.
The Ave Maria Growth fund [AVEGX] for example, focuses on companies that share religious values consistent with the Catholic Church, which means it would not invest in the stock of health care providers that support abortion.
There is also a Muslim Fund, as well as environmental funds that focus on solar energy and recycling.
The SPDR Gender Diversity ETF [SHE] only invests in companies that have a certain percentage of women represented on their boards.
“No matter what a client cares about or what change they want to make, there is an investment to promote that change,” said Aaron Leaman, chief investment officer for Signature Financial Planning on Mount Washington.
For many years, the general belief was that socially responsible investments have a lower rate of return than traditional investments, but the investor will come out feeling better about himself.
In 2017, Nuveen TIAA Investments released a report that found — after assessing the leading socially responsible investment equity indexes over the long-term — no statistical difference in returns compared to broad market benchmarks. That suggests that investing for moral values does not carry a penalty.
“Incorporating environmental, social and governance criteria in security selection did not entail additional risk,” the report said.
Just as the definition of socially responsible companies has changed over the years, these socially responsible funds do more than just pick investments. Many have managers who actively campaign for companies to improve their behavior, working to make an impact on the world on behalf of their investors.
New York-based Domini Social Investments has been talking to Kraft Heinz and its predecessors since 2012 about committing to obtaining the ingredients for its products in a sustainable way that won’t contribute to the destruction of forest land or supporting other questionable practices.
In response to investor concerns, the company co-headquartered in Pittsburgh and Chicago last year released its first report on corporate responsibility, outlining its commitment to the humane treatment of animals and announcing policies to protect forests and prohibit the use of child and forced labor.
Downtown-based Federated Investors also took steps in 2017 to hold itself to a higher corporate standard in managing $364 billion of customer assets. The company signed a proclamation in November sponsored by the United Nations to incorporate environmental, social and governance criteria for the companies it invests in.
“Federated Investors’ mission is to be a responsible steward of the financial assets entrusted to us by our clients,” said a statement released by the company.
As a wealth management firm managing $11 billion in client assets, Hefren-Tillotson has taken an interest in this area of investing. The firm created a portfolio of mutual funds it began offering in November for clients who are interested in socially responsible investing.
Prior to November, socially responsible investment portfolios were done on a customized basis for specific clients. Now the firm has a general portfolio for ethical investments, which it manages as actively as its traditional portfolios in terms of making strategic decisions.
“The managers that we use would reach out to Fortune 500 companies like the Michael Kors clothing company and ask about their procedures,” said Mr. Bernstein, who manages the socially responsible investment portfolio at Hefren-Tillotson. “They would ask things like how do they know that none of their factory workers are indentured servants?”
He said this type of investing can really make a difference in the world because what investors are saying to a company is that issues related to ethical business practices are important. That can have a domino effect on other companies.
“It’s very empowering to individual investors to say, ‘What I am trying to achieve in my own personal life with my portfolio can have a wider effect to make the world better than if I didn’t choose to invest this way,’” Mr. Bernstein said.
Mr. Leaman, at Signature Financial Planning, said his firm has offered a socially responsible investment portfolio for the past six years.
“We believe in doing good for the world,” he said. “There are a lot of other companies that share that belief, and many of them are good investments. The single most interesting thing about socially responsible investments is that it means something different to everyone.
“Some people care about the environment and want to invest in solar power,” Mr. Leaman said. “Others care about labor practices. Still others want to express their religious values. So, what makes a good socially responsible investment portfolio is one that finds good companies that match the client’s own personal values.”
Source: Pittsburgh Post-Gazette