By Scott Bishop
Your morals and character are important to you. You live every aspect of your life accordingly, but have you thought about your investment portfolio as an extension of your principles? If you are an animal rights activist, does your portfolio reflect your beliefs? Do the companies you own in your IRA respect human rights? And do the companies in your mutual funds treat their employees ethically and fairly? Socially responsible investing (SRI) and Environmental, Social, and Governance (ESG) are investment strategies that align with the world’s expectations of a better society.
Socially responsible and ESG investing aren’t just for institutional portfolios like foundations and pension funds anymore. A wide range of investment firms make decisions with an intention toward initiatives such as the UN’s 17 Sustainable Development Goals.
ESG vs. SRI
While the two styles of investing are similar, there is a distinct difference. ESG analyzes a company’s risk factors and opportunities to determine the impact on performance. It’s a fundamental stock analysis using the lens of social consciousness. ESG seeks to affect returns positively with companies that meet specific, socially responsible criteria.
Alternatively, SRI actively seeks social change with the selection of the companies in the portfolio. Many times performance is secondary to a portfolio that is morally and ethically composed. While both wouldn’t invest in companies that use child labor, there is a subtle difference. SRI specifically doesn’t invest in firearms, tobacco, gambling or weapons, and other industries because they are deemed inconsistent with moral beliefs. Stocks are cut because they do not meet these specifications.
Shareholder Activism
Mutual fund companies that have ESG funds participate in active shareholder engagement. For example, after several school shootings, one mutual fund company approached a retail giant that sold firearms. Their active engagement persuaded the company to stop selling guns to those under 21 and ended the sale of high-capacity magazines and assault rifles.
Socially Responsible Companies
And the pandemic has made ESG investing even more popular. For example, Kroger, which has a higher ESG rating than Walmart and Costco, has done better in the market after it announced that it would be giving its frontline workers bonuses, paid time off for COVID, and general financial assistance to its employees. While ratings can help a company, note that companies self-report their data and rating agencies such as MSCI and Morningstar each have their own criteria for grading, so it’s not an exact science.
ESG isn’t just investing in niche solar panel companies and the like. Some of the largest companies in the U.S. have the highest ESG rating of AAA. Microsoft and Best Buy each earned that coveted rating because of the ESG strategies. Microsoft became carbon neutral in 2012, uses solar panels, and gives back to the community providing computer training to underserved minority students. Best Buy is given high marks for its handling of the pandemic and its board diversity, which is 60% female and has a female CEO.
There are many mutual funds and ETFs that provide ESG and SRI funds that can drill down to almost any social concern like funds specifically addressing gender diversity on boards and executive management and ones that focus on workplace environments. There is even a Catholic mutual fund for those wanting to align their investments with their religious beliefs.
Contact Us
If you feel strongly about a cause or issue and believe investing in companies that do good can be good for your portfolio, then ESG and SRI investing is an opportunity for you to make your social consciousness known.
If you would like to invest in ESG or SRI funds, call us and we’d be happy to provide you with more information on these emerging and important investment strategies. Reach out to us at 562-432-3783 or info@mbpwm.com to schedule a meeting.
About Us
Mountain-Bishop Private Wealth Management is a full-service independent financial services and investment services firm that has been providing retirement and investment guidance to high-net-worth individuals, business owners, and Boeing employees for more than 25 years. Through our long-term guidance, we strive to help our clients build, protect, distribute, and transfer their wealth, tailoring our services and strategies to address each client’s unique needs so they can bridge the gap between their current financial situation and their long-term goals.
Scott and Tom built their practice on trust and excellence. They focus individually on each client, delivering the personalized touch that is missing with many other firms.
The Financial Consultants of Mountain-Bishop Private Wealth Management are registered representatives with, and securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: (AK, AZ, CA, CO, FL, GA, ID, IL, MI, MO, NC, NJ, NM, NV, OR, PA, SC, UT, VA, WA) SCOTT E. BISHOP CA LICENSE OB55872 THOMAS P. MOUNTAIN CA LICENSE OB55827
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Socially Responsible Investing (SRI) / Environmental Social Governance (ESG) investing has certain risks based on the fact that the criteria excludes securities of certain issuers for non-financial reasons and, therefore, investors may forgo some market opportunities and the universe of investments available may be smaller.
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(2) https://www.calvert.com/shareholder-advocacy.php
(4) https://www.thinkadvisor.com/2018/08/06/understanding-esg-ratings-a-brief-primer-from-cele/
(5) https://www.investors.com/research/microsoft-stock-excels-esg-scores-price-performance/
(6) https://corporate.bestbuy.com/best-buy-recognized-as-one-of-best-companies-for-women-to-advance/
(7) https://money.usnews.com/investing/funds/slideshows/best-socially-responsible-mutual-funds?slide=8