Socially Conscious Investing for a Sustainable Future
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About SRI

Socially Responsible Investing (SRI) goes by various names including Green Investing, Sustainable Investing, Clean Tech, and High-Impact.  It is not a separate asset class, but an overlay of selected criteria. For an introduction, please see my article “Socially Responsible Investing for Idiots” at http://simony.us

SRI investments include mutual funds, ETFs, and private placements or private investments. While some people are excited about investing in solar or wind, others want to include corporate, social, and environmental practices in their investment screening. Formulating and implementing an SRI-based portfolio requires a prudent, systematic due diligence process.

It’s a misconception that SRI entails sacrificing performance. 87 percent of investors say they would consider investing in socially responsible funds if they knew the rate of return was the same as other mutual funds. Surprisingly, only 20 percent of investors report that their advisors have proactively discussed socially responsible investing with them.   1

The chart below compares two broad-market indices from April 1990 to December 2008: the S&P 500 index vs. DS400 SRI index. 2
(http://www.kld.com/indexes/ds400index/performance.html)

S&P 500 vs KLD DS400

S&P 500 vs KLD DS400

THE RESEARCH HAS FOUND that on average, SRI funds do not perform any better or worse than their conventional peers. SRI accounts for one in every nine dollars under portfolio management in the United States, and is attracting assets at a faster rate than the broader universe of all investment assets under professional management. 3

Individuals and institutions are increasingly finding ways to align their investment choices with their values. An October 2007 survey of the literature by analysts at Phillips Hager & North Investment Management Ltd. reported: “The chief finding of this research is that socially responsible investing does not result in lower investment returns.” 4  Two other overviews were also recently published and arrived at the same conclusion. One was issued by the United Nations Environment Program Finance Initiative, and the other from Goldman Sachs Global Investment Research.

United Nations Environment Program Finance Initiative
“While the results vary depending on the factor being studied, the region and the sample period, the evidence suggests that there does not appear to be a performance penalty from taking ESG factors into account in the portfolio management process.” 5

Goldman Sachs Global Investment Research
A report released by Goldman Sachs, one of the world’s leading investment banks, showed that among six sectors covered – energy, mining, steel, food, beverages, and media – companies that are considered leaders in implementing environmental, social and governance (ESG) policies to create sustained competitive advantage have outperformed the general stock market by 25 per cent since August 2005. In addition, 72 per cent of these companies have outperformed their peers over the same period. 6

A GROWING DEMAND FOR SRI CHOICES IN RETIREMENT PLANS

  • Among those currently employed, 22 percent report having a socially responsible investment retirement option.
  • Two in three investors who do not have a socially responsible option would like to see their company add one.
  • 68 percent of retirement investors say they would invest in a socially responsible fund if it were available to them. 7
  1. Attitudes Toward Socially Responsible Investing. Survey conducted by Yankelovich in 12/2005. http://www.calvert.com/pdf/yankelovich_2006.pdf ↩
  2. The Domini 400 Social Index (DS400) is a float-adjusted, market capitalization-weighted, common stock index of U.S. equities. Launched by KLD in May 1990, the DS400 is the first benchmark index constructed using environmental, social and governance (ESG) factors. It is a widely recognized benchmark for measuring the impact of social and environmental screening on investment portfolios. In selecting companies for the DS400, KLD seeks to maintain the composition of Index holdings at approximately 250 S&P 500 companies, 100 additional large and mid cap companies chosen for sector diversification, and 50 smaller companies with exemplary social and environmental records. The S&P 500 is an unmanaged but commonly used measure of common stock total return performance. It is composed of 500 widely held common stocks listed on the NYSE, AMEX and OTC markets. Investment return and principal value of stocks will fluctuate with changes in market conditions. It is not possible to invest directly in an index. Past performance is not indicative of future results. It is always possible to lose money when investing. ↩
  3. 2007 Socially Responsible Investing Trends in the United States. Social Investment Forum. http:/./socialinvest.org ↩
  4. Does Socially Responsible Investing Hurt Investment Returns? Phillips Hager & North Investment Management Ltd. October 12, 2007 http://tinyurl.com/d62hwu ↩
  5. Demystifying Responsible Investment Performance-A review of key academic and broker research on ESG factors, p. 36. The United Nations Environment Programme Finance Initiative, 2007 http://tinyurl.com/yq6yxb ↩
  6. Goldman Sachs “GS Sustain” report June 22, 2007 http://tinyurl.com/34nfnl ↩
  7. Attitudes Toward Socially Responsible Investing. Survey conducted by Yankelovich in 12/2005. http://www.calvert.com/pdf/yankelovich_2006.pdf ↩

helping you to walk the talk