The Bottom Line
All you need to know for smart financial decisions
How to align your Investments with your Values
Socially Responsible Investing (SRI)
Socially Responsible Investing (SRI) is when you invest in companies with good environmental, social and governance practices, and that produced products you support.
It is easy to achieve this goal using funds specially designed to include or exclude companies based on whether they are in compliance with criteria for classification as SRI or ESG - Environment, Social, Governance.
Socially responsible investing lets you "walk the talk" of being socially responsible.
SRI is when you invest in companies with products and environmental, social and governance practices you support. SRI empowers you to put your money where your mouth is. Claiming to be a committed environmentalist is hard to support when you invest in companies that are destroying the environment.
How to SRI
Invest only in companies with strong ESG (environment, social, governance) ratings;
Avoid industries and companies which you believe do not have ethical business practices and products. For example, you may choose not to invest in companies which employ child labor and/or to invest in companies with strong diversity initiatives.
Do-it-yourself SRI can be tricky. Don’t fall victim to marketing hype.
Determining the true environment, social and governance policies of a company can be difficult. Just because a company says it is socially responsible doesn’t mean it is. The right marketing campaign can craft an image that doesn’t reflect actual policy or product.
ESG funds are one of the fastest growing asset classes receiving $5.5 billion in net in-flows in 2018. To benefit from this trend some funds have simply relabeled as ESG-“focused”. Others claim they are ESG funds but have holdings which do not comply with ESG principles. In general, if a fund states it “may hold companies that would be omitted by some exclusionary ESG strategies,” it may invest in sectors ESG advocates reject, like tobacco, oil and gas and defense.
Qualifications of good companies may not be immediately apparent
Identifying qualified companies is not as simple as avoiding products like tobacco and guns. Fundamental research may be necessary. The Visa credit card company, for example, is a top performing holding selected by the Calvert ESG fund “for its good governance, a meaningful investment in data protection and higher-than-average female representation on its board.”
Funds can be a simple way to vet companies & achieve diversification
Mutual Funds and Exchange Traded Funds may be actively managed or structured to track an index. An ESG index fund will seek to mirror the performance of a relevant index, like:
The MSCI KLD 400 Social Index and MSCI World SRI Index providing "exposure to companies with outstanding Environmental, Social and Governance (ESG) ratings and excludes companies whose products have negative social or environmental impacts," or
The SSGA Gender Diversity Index of companies advancing women and gender diversity on boards and in management.
ESG investments can outperform non-ESG portfolios if chosen wisely
Looking back five and ten years, the best-performing ESG funds offered annualized returns ranging from 12% to 18%, compared with 10% and 17% for the S&P 500. When selecting funds, it is important to consider performance as well as investing mandate and ESG criteria.
Bloomberg provides data across many criteria as well a composite score. The ESG funds with the highest scoring, as of November 30, 2018* were:
*Updated rankings, as of June 2019, can be viewed here.
The label "socially conscious fund" does not indicate a common focus
Socially conscious funds can have very different investing mandates and benchmarks. From the funds listed above:
Brown Advisory Sustainable invests in companies which “effectively implement sustainable business strategies to drive heir earnings growth.”
The Calvert Fund “is guided by The Calvert Principles for Responsible Investment.”
The Ave Maria Fund “invests in companies that do not violate the core values and teachings of the Roman Catholic Church.”
Putnam Sustainable Leaders focuses on companies that “exhibit a commitment to sustainable business practices.”
The Vanguard FTSE Social fund invests to “track the performance of the FTSE 4Good US Select Index.”
The Iman Fund “seeks growth of capital while adhering to Islamic principles” investing in securities in the Dow Jones Islamic Market Indexes as well as “securities chosen by the advisor that meet Islamic investment principles.”
More ESG and SRI Funds
To remain focused solely on your best interest, we do not endorse or recommend individual funds, stocks or other investments. The following list is not inclusive and is provided for your convenience only. Funds were not reviewed for performance or adherence to SRI or ESG investing criteria. Funds are named solely to illustrate the range of investment focus and help you get started. Simply click on the Symbol to see detailed information for each fund.
GENDER DIVERSITY & WOMEN IN LEADERSHIP
Women in Leadership U.S. Equity Portfolio (GWILX)
Portfolio of companies with significant female representation in leadership.
Pax Ellevate Global Women’s Leadership Fund (PXWEX)
Invests in Impax Global Women’s Leadership Index of companies rated highest in the world “for advancing women on boards and in executive management.”
SPDR SSGA Gender Diversity Index ETF (SHE)
Tracks index of companies "that are leaders in advancing women through gender diversity on their boards of directors and in management."
ENVIRONMENT & TREATMENT OF EMPLOYEES
Domini Social Equity (DSEFX)
Invests in companies that “protect the environment, produce safe and useful products, and treat workers, investors, and suppliers fairly.”
Parnassus Endeavor Investor (PARWX)
Invests in companies that provide good workplaces for their employees.
iShares MSCI ACWI Low Carbon Target ETF (CRBN)
Focused on companies that “care about the environment.”
SDRP S&P 500 Fossil Fuel Reserve (SPYX)
Tracks S&P 500 after removing companies owning fossil fuel reserves-crude oil, natural gas and coal.
SOCIAL, MORAL AND HUMAN RIGHTS
iShares MSCI USA ESG Select ETF (SUSA)
Screens out companies seen as ethically or morally questionable, notably excluding tobacco.
Vanguard FTSE Social Index (VFTSX)
Tracks index of stocks screened for certain social, human rights, and environmental criteria.
TIAA-CREF Social Choice Equity Fund (TICRX)
Seeks to replicate performance of Russell 3000 index, sans companies that don't meet its ESG standards.
iShares MSCI KLD 400 Social ETF (DSI)
Tracks index of companies with “superior environmental, social and governance ratings.”