Is Your Money Invested Where Your Values are?

Posted by Christina Ubl - November 14, 2016 | Filed under: Recent Articles, Money & You

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If you have ever recycled at home, avoided products made overseas by sweatshop labor, grown your own vegetables, supported gender and racial diversity, or owned a fuel-efficient car, then you may be surprised to discover your investments can be working against your values. Do you know what’s in your portfolio? How can you find out what your money is supporting?

Old and New Values Investing

Evaluating your portfolio using traditional socially responsible investing or SRI analysis has been around for a long time. The process involves an investment style that includes or excludes companies in a portfolio based on screens using social, moral, ethical and religious criteria. 

For the majority of the traditional SRI strategies, this becomes a process that omits companies that earn a certain percentage of their revenue from areas such as weapons, tobacco, alcohol and gambling. (Often referred to as “sin stocks.”) Other SRI strategies look to exclude the stocks of companies in specific industries, or sub-industries that concentrate in these taboo areas.

Evaluating your portfolio became easier since 2006 when the United Nations announced the Principles for Responsible Investment at the New York Stock Exchange. Rather than screening out companies, PRI selects companies after a positive, proactive and comprehensive review of multiple specific criteria. Factors considered for this type of investing are often labeled as environmental, social and governance (ESG) criteria.

The Rise of ESG Issues

You are not alone in your increased interest in social impact or sustainable investing. By whatever name, a greater recognition of the financial cost and potential risks of environmental, social and governance issues are gaining ground with a wider investor base, even without a label.

ESG criteria include a collection of non-financial performance indicators in three broad areas, as described by Investopedia:

  • Environmental criteria consider at how a company performs as a steward of the natural environment.
  • Social criteria examine how a company manages relationships with its employees, suppliers, customers and the communities where it operates.
  • Governance looks at a company's leadership, executive pay, audits and internal controls, and shareholder rights.

Driven by a growing consensus that responsible investing doesn't mean sacrificing returns, demand for ESG investments has risen dramatically among both institutions and individuals and shows no signs of slowing. 

Between 2012 and 2014, ESG assets under management in the U.S. grew 76%, to $6.57 trillion from $3.74 trillion, according to a report from the Forum for Sustainable and Responsible Investment.

The Global Sustainable Investment Alliance annual report describes SRI internationally. A recent Bloomberg Brief illustrates continuing demand and growth through 2016.

What Is Fueling the Growth of Sustainable, Responsible, Impact (SRI) Investing?

Intuitively we know corporations may have either a positive or negative impact on people, communities, and our natural environment. And increasingly, we realize that the ways we spend and invest can influence corporate behavior.

I see a convergence of eight trends driving the widespread and growing interest in SRI investing.

Information. Investors are better educated and informed today. More high-quality information is available than ever before. The better-informed investors are, the more responsible our actions tend to be.

Climate Change. As consumers and investors become increasingly aware of both the dangers and business opportunities represented by the climate crisis, more are looking to invest in solutions and avoid companies contributing to the problem.

Performance. An important body of academic evidence plus real world results effectively dispels the myth that investing in a more thoughtful, responsible manner will result in underperformance. Investors now realize that responsibility could walk together with prosperity.

Availability. Responsible investment options are increasingly being offered within retirement plans, and a socially conscious investor can now choose from among hundreds of options to populate a long-term investment portfolio—regardless of size.

Values and Authenticity. A large and growing segment of the investing public is seeking to reflect their personal, moral, and ethical values in all aspects of their lives. Responsible investors are recognizing that money has an impact, and consciously making consumer purchases and investment decisions can enhance the common good.

Corporate Scandals. Numerous recent instances of accounting fraud and other scandals have eroded trust in company leadership. Many investors are attracted to an investment process based on research that goes deeper into corporate behaviors and impacts.

Women. As women have filled the ranks of MBA programs and law schools, climbed corporate ladders, started their own companies, received large inheritances, and assumed roles as fiduciaries, many have brought an affinity for a more caring approach to investing with them. 

Millennials. Born between the early 1980s and the early 2000s, the millennial generation at 85 million strong is the largest in American history. This is a generation that seeks to make a difference in society through the jobs they hold, the products they buy, and the investments they make. Millennials are beginning to inherit trillions of dollars from Baby Boomers—and their influence as impact-oriented investors is already evident.

More Help is Coming

Soon it will be much easier to know if your money is supporting your values and concerns. The Sustainability Accounting Standards Board, chaired by Michael R. Bloomberg, has published proposed metrics for 79 industries.  In April, the SEC issued a “Concept Paper” exploring changes to disclosure requirements for publicly traded companies to include ESG factors. The announcement has generated thousands of comments. Perhaps most immediately relevant for investors in the Lake Champlain region, investment research firm Morningstar has announced it is developing ESG scores to be released by the end of 2016.  As these socially responsible investing trends continue, I look forward to continuing to help clients integrate their values with their financial goals.


Resources / Links

Secretary-General Launches ‘Principles For Responsible Investment’ Backed By World’s Largest Investors — United Nations

The Forum for Sustainable and Responsible Investment, Executive Summary, Report on US Sustainable, Responsible and Impact Investing Trends 12 (2014).

Environmental, Social And Governance (ESG) Criteria — Investopedia

Sustainability Accounting Standards Board

Global Sustainable Investment Alliance annual report


Christina Ubl, CFP®, CDFA™ of Clute Wealth Management in South Burlington, VT and Plattsburgh, NY, an independent firm and registered investment advisor that provides strategic financial and investment planning for individuals and small businesses in the Lake Champlain Valley region. The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendations. Socially Responsible Investing is subject to numerous risks, chief amongst them that returns may be lower than if the advisor made decisions based only on investment considerations. For a list of states in which we are registered to do business, please visit www.clutewealthmanagement.comSecurities offered through LPL Financial, member FINRA/SIPC. Clute Wealth Management and LPL are separate entities. All investments carry some degree of risk. For SRI investments, as with any investment, asset allocation and diversification of your portfolio is an important factor in managing risk.

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