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Socially Responsible Investments

Meaningful, Wise and Practical Tips

The origins of socially responsible investment (SRI) in America date back to at least the mid 1700s when John Wesley’s (1703 – 1791) sermon, “The Use of Money,” directed “not to harm your neighbor through your business practices and to avoid industries which can harm the health of workers.” 

American economic prosperity and the rise of the middle class, following World War II, provided individuals with savings to invest. The political climate of the 1960s then combined with the growth of the mutual fund industry to provide the foundation of modern alternatives for socially responsible investment, now referred to as sustainable, responsible, impact (SRI) investment. 

Today, investors may utilize their personal financial resources as a tool to support or reject corporate or governmental behavior. There are three facets of socially conscious investing: environmental, social and governance, collectively referred to as ESG, that measure the ethical and sustainable impact of an investment. ESG investment considerations include climate change, tobacco, alcohol, conflict risk including terrorist or repressive regimes, human rights and transparency and anti-corruption. 

The leading voice advancing sustainable, responsible and impact investing across all asset classes is US SIF: The Forum for Sustainable and Responsible Investment. Its mission is to “Rapidly shift investment practices towards sustainability, focusing on long-term investment and the generation of positive social and environmental impacts.”

According to a US SIF Foundation 2018 Trends Report, approximately 26 percent of all assets under professional management are categorized as SRI. Total U.S.-domiciled assets under management (AUM) using SRI strategies grew from $8.7 trillion at the start of 2016 to $12 trillion at the start of 2018, a 38 percent increase. 

Mutual funds are the largest of these in terms of number of funds and assets: 636 mutual funds with $2.6 trillion in AUM. The investment approaches most broadly employed by money managers are to avoid investments linked to ESG concerns. Most mutual funds provide access to investment products containing a diversified portfolio and low minimum investment tailored to the individual investor. Some professional financial advisers will assist individual investors in identifying SRI mutual funds suitable to individual investor objectives.

The overall number of mutual funds incorporating ESG has increased four-fold since 2012. Additionally, 20 exchange-traded funds (ETFs) that incorporate ESG criteria were identified with $3.5 billion in assets at the end of 2011, an increase from the eight ETFs with $2.25 billion in net assets identified in its 2007 report—the first Trends report to track ETFs.

The Trends Reportalso focuses on the extent to which Employee Retirement Income Security Act of 1974 (ERISA)-governed pension plans added ESG funds after the Department of Labor’s 2015 guidance acknowledged that “environmental, social and governance issues may have a direct relationship to the economic value of the plan’s investment.”

Regarding investment performance, US SIF says, “Several research studies have demonstrated that companies with strong corporate social responsibility policies and practices are sound investments. Studies with such findings have come from Oxford University, Deutsche Asset & Wealth Management, Morgan Stanley Institute for Sustainable Investing, TIAA-CREF Asset Management and the United Nations Environment Programme Finance Initiative, among others. They found that the majority of studies show a positive correlation between ESG standards and corporate financial performance.”

Investors seeking to utilize their financial resources for positive social change now have many financial products and services from which to choose. A qualified, independent, professional financial adviser, who is knowledgeable in this specialty, can help navigate individual investors to the SRI choices most suitable to that investor’s tolerance for risk and personal objectives.

Kenneth S. Ray is a managing partner and registered investment adviser at EPG Advisory, LLC and Safe IRA, located at 24B E. Roseville Rd., in Lancaster. For more information, call 866-472-7233 or visit http://www.SafeIRA.org

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