Blog : When Socially Responsible Investing Becomes Personal

By Katelyn | Nov 10, 2015 | in

By Michael McCord

For Sarah Brown it was time to step up and take her own advice.

In this case, the advice meant an analysis of her investment portfolio to see if it matched her personal values. Brown, the Director of the Green Alliance, said for years she had urged the same for friends and Green Alliance Business Partners.

“I’ve been talking to people for the last five years about becoming green in all quarters of their life,” Brown said. “I needed to walk the walk and do it myself.”

At the outset, Brown was simply seeking information to see if her investments matched her values. “I did not want to be investing in gun makers, fossil fuel companies, drug or gambling industry companies, or big-ag companies that promote GMOs,” Brown explained. “I don’t want my investments in businesses that give lots of money to right-wing causes or politicians. No investments in companies that promote LGBT discrimination or union-busting.”

She also was curious to talk to an advisor who cares about “this stuff” too. “My current advisor is lovely and has produced great results for me; I do trust him with my investments but I realize I want, even need, more than that”.

Brown had planned this exercise to be an educational journey and didn’t imagine she might decide to literally change both her investment portfolio and her financial advisor. She turned to Mike Smith, the Newmarket-based representative for the Progressive Asset Management Group (PAM Group), the socially responsible investment division of Financial West Group.

“Some potential clients strongly believe in matching their investments to their personal values so they seek us out,” Smith said. “Others just want to learn more about their investments to see if they hold things and are making money from with which they aren’t comfortable. We start by sitting down and talking about what’s important to them to find out what they don’t want to be invested in and what they do want to be invested in and support. We also take a hard look at the risk level with which they’re comfortable to be sure we match them with a risk level which is appropriate.”

Investment returns have become almost a non-issue for socially responsible investors as study after study over the past decade has shown that SRI funds can easily match or out-perform those which are not SRI. Whether it’s called SRI (Socially Responsible Investing) or ESG (Environmental, Social, Governance), the investing landscape has been altered over the past two decades and is no longer considered niche or fringe as returns have equalized or surpassed common non-SRI portfolios.

This was important to Brown because as a small investor with plans to help finance her children’s college education and her retirement she admitted she couldn’t sacrifice future returns. “I can’t afford to lose money and I wasn’t going to make any changes if that was the case,” Brown said.

Smith said most investors he talks to are similar to Brown in that they have a handful of mutual funds in various accounts which they don’t fully understand, but can’t afford to put at risk. “They want to make a difference,” he said. “They recycle and are very green in other parts of their lives, but when it comes to their investments they really haven’t considered if they line up with green conscience. When we make a proposal that reflects their values, they are often surprised to find there is so much data and research now that shows their current performance will be the same or even a little bit better. Very rarely is it worse.”

Brown read a 2014 article in the U. S. Trust publication Capital Acumen about ESG investing going mainstream – and especially how some performance metrics exceed those of non-ESG investing. For example, the MSCI World ESG Index rose 130.4 percent from September 2007 to August 2014. By comparison, during the same period the non-ESG MSCI World Index rose 129.41 percent.

“What people like Sarah are finding out is that despite the fact that markets are volatile, companies which respond to ESG initiatives are considered to be better run and potentially have better long-term performance because of it,” Smith said.

The growing wave of small, large and institutional ESG/SRI investors has been impressive. Since US SIF began tracking SRI trends in 1995, SRI assets have grown 929 percent, or an annual growth rate of 13.1 percent. At the start of 2014, SRI investments represent nearly 18 percent of the $36.8 trillion in total assets under management.

Brown’s educational journey was an eye-opener. After Smith did an extensive analysis of her three mutual fund portfolios she was happy to discover she did not have any investments in gun companies. But she was stunned to learn about other investments.

“I found to my dismay that I’m heavily invested in some of the worst names in fossil fuels,” she said. “I’m also invested in Halliburton and Monsanto and Transocean which is the company behind the (2010) BP oil spill in the gulf.”

“Sarah’s experience is very typical of many clients we see,” Smith said. “Most don’t have stock portfolios. They have an IRA or 401(k) plan that invests in traditional mutual funds and they don’t really know what they own.”

Brown said the experience has been worth it and realizes the importance of reaching out to experts who can help decipher an often bewildering maze of investments.

Brown also discovered one of her three accounts was considered high risk. “The PAM Group’s ability to dissect mutual funds is amazing because without their tools and knowledge I would have no way of knowing this stuff,” she said. “Mutual funds for the most part are not very transparent, but even when they are the average person doesn’t know the background and behavior of the individual companies which make up the fund like the PAM Group does. It was very liberating and informative for (Smith) to produce this for me.”

Brown also decided she would change advisors to the PAM Group and begin reinvesting her entire portfolio as soon as possible. She is also spreading a more personal word about her experience to friends and even her husband. “I feel my investments will do better with someone who understand where I’m coming from and knows what’s important to me,” Brown said.

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