By Mark A. Vergenes
A LOT OF PEOPLE ARE TALKING about socially responsible investing. More and more Americans want to direct their investing dollars toward companies that promote social, environmental, or even political concerns. Even if a company is not mission-directed to a single cause, fewer people are comfortable investing in companies or funds that actively work against their beliefs.
I get a lot of questions about this type of investing so I’m sharing some of the most common questions and answers in this article.
Is It Hard to Find Socially Responsible Investment Opportunities?
Short answer: no. When socially responsible investing gained steam in the ’70s and ’80s, few corporations shared the details of their beliefs and goals. As many investors began avoiding corporations and funds that contributed to continuation of the Vietnam War or propped up apartheid in South Africa, more companies saw value in becoming transparent about their activities and beliefs.
Short answer: no. When socially responsible investing gained steam in the ’70s and ’80s, few corporations shared the details of their beliefs and goals. As many investors began avoiding corporations and funds that contributed to continuation of the Vietnam War or propped up apartheid in South Africa, more companies saw value in becoming transparent about their activities and beliefs.
In 2018, investment offerings are continually developed to provide opportunities to invest in ways that are consistent with a variety of belief systems. These types of funds are so pervasive that socially responsible investing has become the norm for colleges and universities, public entities, government pension and retirement funds, and many religious groups.
Whether you’re conservative or liberal, looking to support social causes, environmental concerns, or a religious belief system, there are a variety of investments that support your values. You can also boycott offerings that conflict with your conscience.
How Should You Evaluate Socially Responsible Investments?
Most funds are developed based on social, environmental, and corporate governance practices. This makes it easier than ever to avoid companies with products, actions, or policies that conflict with your value system. For example, it’s common for socially responsible funds to exclude alcohol, tobacco, gambling, or defense funds. It’s also common for these types of funds to eliminate companies that are not environmentally friendly. Other funds work to exclude investments that represent countries considered to have repressive or racist governments.
Most funds are developed based on social, environmental, and corporate governance practices. This makes it easier than ever to avoid companies with products, actions, or policies that conflict with your value system. For example, it’s common for socially responsible funds to exclude alcohol, tobacco, gambling, or defense funds. It’s also common for these types of funds to eliminate companies that are not environmentally friendly. Other funds work to exclude investments that represent countries considered to have repressive or racist governments.
While screening for negatives is one approach to socially responsible investing, choosing companies with positive aspects is another strategy. Many funds focus on companies whose practices promote a social ideal, such as protecting the environment or following a particular set of religious beliefs.
What Is Impact Investing?
When investors not only resolve to further a social good but also resolve to support companies that execute these goals in ways that use resources more efficiently, we call it impact investing. Impact investing uses benchmarking to compare returns and actively monitors an investment’s ability to fulfill its social goals. Impact investments are sometimes made directly in an individual company or organization and may involve mentoring of its leaders. As a result, these unique investments may be classed as venture capital and private equity instead of within traditional assets such as stocks or bonds.
When investors not only resolve to further a social good but also resolve to support companies that execute these goals in ways that use resources more efficiently, we call it impact investing. Impact investing uses benchmarking to compare returns and actively monitors an investment’s ability to fulfill its social goals. Impact investments are sometimes made directly in an individual company or organization and may involve mentoring of its leaders. As a result, these unique investments may be classed as venture capital and private equity instead of within traditional assets such as stocks or bonds.
Can I Make Money with Socially Responsible Investing?
In today’s environment, you don’t have to accept financial mediocrity in exchange for supporting your beliefs. Many companies today offer an attractive mix of socially conscious goals and sound fiscal behavior. Others don’t. That’s why it’s so important to monitor your investment’s performance and be prepared to look elsewhere if your investment doesn’t continue to meet your needs, either financially or philosophically.
Many socially responsible investments could provide good financial returns, and many may not. Remember that past performance is never a guarantee of future results, but you should use past performance as a starting point to determine what kind of return you might expect. A good financial adviser can help you develop a mix of investments that best serve your needs.
MARK A. VERGENES is president of MIRUS Financial Partners. He can be reached at mark@mirusfinancialpartners.com.
MIRUS Financial Partners, nor Cetera Advisor Networks LLC, give tax or legal advice. Opinions expressed are not intended as investment advice and may not be relied on for the purpose of determining your social security benefits, eligibility, or avoiding any federal tax penalties. All information is believed to be from reliable sources; however, we make no representations as to its completeness or accuracy. All economic and performance information is historical and indicative of future results.