Sustainable, responsible and impact investing
IN THE PAST FEW YEARS, WE HAVE WITNESSED THE PROLIFERATION OF INVESTMENT OPPORTUNITIES UNDER THE GREEN, SUSTAINABLE AND SOCIALLY RESPONSIBLE UMBRELLAS.
As you save for your retirement, sustainable, responsible and impact investing (SRI) is a natural extension of conscious shopping practices for anyone who wants to integrate values with financial choices.
This approach to investing is more popular than ever, and you can get started with a few hundred dollars. According to The Forum for Sustainable and Responsible Investment’s biennial trends report, the total assets under management using SRI strategies increased from $3.74 trillion in 2012 to $6.57 trillion in 2014, an increase of 76 percent. Assets managed using SRI strategies now account for more than one out of every six investment dollars under professional management in the United States. These investments, owned by individual, business and institutional investors, include many high-quality options for brokerage and retirement accounts and funds across a variety of asset classes.
As with other types of values, there are many shades of green. Two of the most popular issues today are climate change and the state of our politics. As such, there are now SRI funds that avoid fossil fuel production, with select companies committed to minimizing their carbon footprints or advocating for legislative efforts to price and tax carbon emissions. Other funds seek companies that are willing to disclose their political contributions to candidates and PACs, recognizing the reputation risk to these companies, while the SRI industry as a whole exerts pressure on Congress and the SEC to require mandatory annual disclosure of ESG practices, all of which are material to the financial bottom line.
For some, SRI involves screening out other sectors they may find objectionable— tobacco, alcohol, firearms and gambling are common exclusions, followed by nuclear power and military contractors. As part of ongoing ESG analysis, money managers are evaluating business practices across all industries, looking at issues such as EPA violations, child labor, sweatshop conditions, workplace and board diversity, corporate political disclosure, human rights, community relations, product safety, unnecessary animal testing, offensive and deceptive marketing, and executive compensation.
While most fund companies apply exclusionary screens, some differentiate their approach to social research by looking proactively for companies with specific sustainability programs and other exceptional policies and practices. While no major corporation has achieved sustainability, many are taking it seriously by examining their supply chains, focusing on renewable energy and efficiency, and implementing “care of people” policies. Yes, green washing does exist, but we are now able to distinguish the pretenders from the committed. Visit naturalinvestments.com to see the NI Social Rating, the nation’s original social and environmental rating of the breadth and depth of socially responsible mutual funds’ screening criteria, shareholder advocacy efforts to reform business policies and practices, and investments in community economic empowerment through locally owned banks, credit unions and loan funds.
MICHAEL KRAMER is a managing partner and director of social research at Natural Investments LLC, a certified founding B Corp and a nine-state SRI advisor. He is co-author of The Resilient Investor: A Plan for Your Life, Not Just Your Money.