Socially Responsible Investing Goes Mainstream

Adapted from David Katz’ book, “A Financial Prescription for Doctors and Dentists:

Strategies for Achieving Your Personal and Career Goals”

Selecting investments based on both financial considerations and personal values is nothing new in the investment universe. But what was once considered a “fringe” strategy is becoming an increasingly mainstream approach. Today, there is an increased awareness that choosing opportunities now referred to as Sustainable and Responsible Investing (SRI) can create worthwhile investment value.

The concept has matured in recent decades. At one time, much of the focus of SRI was to screen out specific types of companies, such as corporations involved in the tobacco business or defense contracting. The primary emphasis for socially responsible investors was on the values of a specific company, with its financial prospects playing a secondary, though still important role.

Today, there is an increasing belief that companies with a focus on environmental, social and governance factors may be more profitable. Professional investors who focus on SRI now seek to identify companies that are positioning themselves for long-term success by taking a more socially responsible approach. This may create better investment opportunities for individuals seeking to pursue a values-driven style in their own portfolios.

Different approaches to “investing for good.”

Determining what suits your own preferences as a socially responsible investment is clearly a personal decision. Some of the approaches used today include:

• Avoiding specific investments – staying away from investments in what some would refer to as “sin” stocks, such as tobacco, alcohol, and gambling firms. This “negative screening” process can also include companies involved in the defense business or in certain industries that may have a harmful impact on the environment (i.e., oil companies, pesticide manufacturers).

• Investing in companies that promote causes – this may include firms focused on sustainable approaches to growth that consider what is best for the health of the planet, for example. In other cases, it might be firms that promote specific social stances such as worker’s rights.

• Investing in firms in specific industries – companies that address long-term societal issues, such as clean energy or responsible water usage, may be attractive to some investors.

Investing for a social purpose does not necessarily mean compromising financial objectives. The most effective SRI strategy continues to be focused on the financial fundamentals of an investment, while considering other factors, like those listed above, as part of the screening process. In short, you as an investor are still seeking to make a profit and achieve specific financial goals, but you are finding ways to do so with a sense that your investment benefits the world in a broader way as well.

How individuals can pursue their own SRI strategy

Investing in a socially responsible way is not limited to buying individual stocks or other investments. There are a variety of mutual funds, for example that offer different approaches to sustainable and responsible investing.

Most of these are stock mutual funds that are centered on the actions of specific companies. There are also bond funds that invest in debt issued by governments and corporations aimed toward positive environmental and social development.

If you participate in a pension plan at work, your plan may pursue SRI approaches within its portfolio. One other alternative is to consider direct investments in community-based organizations that will use raised funds to pursue its objectives and still pay investors a return.

Talk with a financial professional about finding ways to align your values with your financial goals and long-term objectives.

David is an Accredited Investment Fiduciary® (AIF) and an Accredited Asset Management Specialist (AAMS®) who advises professionals, retirees, families, and other clients on personal financial strategies. His focus is on financial planning and asset management. David has more than 28 years of investment and wealth management experience, and is the author of two books “A Financial Prescription for Doctors and Dentists: Strategies for Achieving Your Personal and Career Goals” (2015) and “Beyond Performance: How Financial Advisors Deliver Added Value to Their Clients” (2018)

Investing involves risk and you may incur a profit or loss regardless of the strategy selected. Sustainable/Socially Responsible Investing (SRI) considers qualitative environmental, social, and corporate governance, also known as ESG criteria, which may be subjective in nature. There are additional risks associated with Sustainable/Socially Responsible Investing (SRI), including limited diversification and the potential for increased volatility. There is no guarantee that SRI products or strategies will produce returns similar to traditional investments. Because SRI criteria exclude certain securities/products for non-financial reasons, investors may forego some market opportunities available to those who do not use these criteria. Investors should consult their investment professional prior to making an investment decision.

Investors should carefully consider the investment objectives, risks, charges, and expenses of mutual funds. The prospectus contains this and other information about mutual funds. The prospectus is available from our office [or from the fund company] and should be read carefully.