Doing Well By Doing Good

 by Mark Sullivan

Is it wise to invest in companies that make good decisions rather than just financially profitable ones? There is a growing market for socially responsible investments (SRI), where decisions are made not only based on financial factors but on external ones, such as a company’s environmental, social and governance record, or ESG. While there were concerns about these types of funds historically lagging in performance, using such nonfinancial criteria enabled some SRI managers to fare better than traditional money managers last year. According to a study by
Goldman Sachs, “companies that are considered leaders in ESG policies are also leading the pack in stock performance by an average of 25%1”. In addition, Innovest states “There is increasing evidence showing the superior performance in managing client risk is a useful proxy for superior, more strategic corporate management, and therefore for superior financial value and share-holder value creation”2.

Lastly, this from McKinsey & Company: “tackling carbon exposure is more than good environmental stewardship; it could also protect a company’s share price in the near term and create long- term competitive advantage.”3The message seems to be spreading, with SRI being one of the fastest growing

sectors of the market. More than 70% of wealthy Americans have socially responsible and green investments in their portfolios, and more than half have at least one quarter of their assets invested in this sector. As my wise grandmother used to say: “if you want to be wealthy, do what wealthy people do.” For the non-wealthy, the recommended method is through the purchase of mutual funds, in which investors can usually open an account with a few hundred dollars invested into a diversified portfolio that is professionally managed by a fund manager, and can usually add as little as $50 per month. You can often purchase these funds directly from many fund companies, or through most large banks and investment firms which employ investment salespeople who can often work with any amounts, no matter how modest, usually for a sales charge or commission.

For those who have accumulated substantial assets of say, $250,000, they might consider something called a separately managed account (SMA) that often contains a variety of ETFs (Exchange Traded Funds), stocks, bonds, and CDs. These can be constructed and managed by an independent advisor for a set annual fee of usually between 1–2 percent, which normally decreases depending on the amount invested. Though it may sound like this is a more expensive approach, an experienced professional will often select lower-priced solutions that can make his or her services actually less expensive in the long run. Many people are concerned and interested in social investing and making positive differences, whether from the community or environmental perspective. And wouldn’t it be nice to make money for you and yours at the same
time? That’s doing well by doing good.
 

Sources:

Goldman Sachs Global Investment Research, “Overview: Introducing GS SUSTAIN,” July 2, 2007
Innovest - Innovest Strategic Value Advisors, “Carbon Beta and Equity Performance: An Empirical Analysis: Moving from
Disclosure to Performance,” October 2007
McKinsey & Company - Christopher Grobbel, Jiri Maly, and Michael Molitor, “Preparing for a Low Carbon Future,”
McKinsey Quarterly, November, 2004
Mark S. Sullivan is a wealth, estate and philanthropy consultant and founder of Seacoast Asset Management,
Inc. He is a Certified Estate Planner who also conducts continuing professional education seminars for accountants
and attorneys on business succession and executive benefit planning. www.SeacoastAssetMgt.com.