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Socially responsible and green investing: a primer 

Restaurant menus are the worst nowadays — the calories are posted right there in your face! The salad can have as many calories as the burger! I suppose that can be a good or bad thing, depending on how you feel that day. On that note, I feel that most of the time, most of us are trying to do the “right” things. We eat well, we get enough sleep, we drink enough water. We exercise, we try not to cuss, we support our favorite charities and we stick with our other moral convictions. But how do you make sure your investments follow those same values you have set for yourself? Is it possible to stick with your values when it comes to your investments while making money at the same time? Socially responsible investing and green investing may be the answer.

Green Power

What is green investing?

Green investments are investments that focus on companies or projects that are committed to things like conserving natural resources, alternative energy sources, and clean air and water.

What is socially responsible investing?

Socially responsible investing, or social investment, also known as sustainable, socially conscious, “green” or ethical investing, is any investment strategy which seeks to consider both financial return and social/environmental issues to bring about social change regarded as positive by proponents.

The dawn of SRI and ESG investing

Most mutual fund companies now run investments in which you can obtain green investments, socially responsible investments or both. The combination of which is often referred to as ESG investing (Environmental, Social, and Governance investing.) This wasn’t always the case, though. Thanks to John Wesley — founder of the Methodist movement — and Ralph Nader back in the 1970’s, we now have more choices. Wesley pushed to avoid investing with those who earned their money through alcohol, tobacco, weapons or gambling. This is very much like some of the socially responsible mutual funds do today. Nader was successful in getting two socially based resolutions on the annual meeting proxy of General Motors. Finally, in the 1980s, a few mutual fund companies began to see the importance of these investments and started funds that screened for companies involved in weapons, alcohol, tobacco and gambling — and threw them out of the investment lineup. The oldest operating socially responsible mutual fund was launched in August of 1971. The oldest “sin” fund, that focuses on the gambling, alcohol, tobacco and firearms industries was launched in August of 2002. Today, more modern issues such as nuclear energy, environmental issues, and civil treatment of employees (just to name a few) are on the forefront of more and more investors’ minds.

Recycling PlasticThe benefits of socially responsible investing

Some argue that socially responsible investing makes sense because the mutual fund managers doing the research are evaluating companies based on solid values. Therefore — in the long run — they may not be subject to environmental or governmental fines or additional regulations that can cost large amounts of money and change the course of the business.

Choosing socially responsible, green, or ESG investments

If you think too hard about all of these mutual funds and what they invest in, you may wind up paralyzed at the thought of any of them at all. For example, the funds that tend to be green or socially responsible contain a lot of technology and/or financial stocks. Whether many of those companies fit the criteria of “socially responsible” is up to the individual… but we’ve all seen the headlines. So, what do you do? (In fact, I am regularly asked by my clients how the returns of these types of funds measure up to traditional funds, and how exactly they can be found in the first place.)

If your moral convictions just will not allow investments in “sin” stocks, the choice may be very straightforward for you; your financial advisor can suggest several fund families that will satisfy your requirements. You should also be sure to ask your financial advisor what the mutual fund manager is using as his or her screening criteria — otherwise, you could be right back to owning investments that aren’t up your alley.

If you are comfortable with owning any types of stocks or bonds — regardless of industry — your financial advisor can put together a diversified portfolio which would most likely contain both types of these investments.

September 2019

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Past performance does not guarantee future results.

No strategy assures success or protects against loss. Investing involves risk including loss of principal. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. The return of socially responsible investing may be lower than if the adviser made decisions based solely on investment considerations.