Investing with a Social Conscience

A recent article came out in the NY Times, “Why its so hard to invest with a social conscience” and I wanted to comment on it.

Demand for SRI: They point out that there are many good reasons to participate in sustainable investing:

  • In the wake of the Parkland shooting, avoid gun manufacturers
  • Align your investments with the transition to a low-carbon economy
  • Contribute to the development of a global economy that works for more people

Performance: The Journal of Sustainable Finance & Investment evaluated about 2,200 pieces of research and found that about 90 percent of those studies showed no negative relationship between concern for social factors and financial performance.

Costs: They comment on costs (expenses) for funds but leave out the large range of options. Index impact funds are available at low costs but they do not participate in shareholder advocacy. The cost of mutual funds that engage with companies to make change is going to be more than an index fund.

The scale also impacts the cost. SRI funds are not at the scale of a huge S&P 500 index, which will elevate their relative costs.

With the exception of comparing with huge indexes, the expenses of SRI funds are not far out of line and the performance, including expenses, is very competitive. With certain account minimums, even lower expenses can be seen with separately managed accounts.

401k: This is a great point – many people save only through a 401k at work and one study of 421 plans showed that just 14 percent offered at least one sustainable fund and only about 1 percent of plan assets ended up in the investments.

There needs to be more SRI options in 401k plans, which starts with pressure from the workers using these plans.

Control: They state that you can use Wealthfront to remove or add individual stocks. That’s great to point out. There are many separately managed account options which have different investment minimums but give the investor complete control of the holdings.

However, the larger impacts come not from avoiding a company but by engaging in shareholder advocacy and community investing. Just removing Wells Fargo from your portfolio will not necessarily change their behavior; however, getting the SRI community together to propose shareholder resolutions, vote your poxies, and engage with the company can bring real change.

SRI separately managed accounts do engage with companies but generally there is a high account minimum (such as $200k).  For that reason SRI mutual funds (which engage in shareholder advocacy) are a good option.


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