Socially Responsible Investing (SRI) for Nonprofits

Sustainable, Responsible, Impact Investing (SRI) (also known as socially responsible, sustainable, socially conscious, green, value, impact and ethical investing) continues to grow at a faster pace than conventional investment assets. The idea is to invest in-line with your values. SRI provides a way to support organizations and issues that you are concerned about while earning a competitive return.

SRI can be incorporated in a non-profit’s finances through their:
• Retirement Plans – provide SRI options (401k’s or 403b’s)
• Foundation investments – follow investment policy with SRI investments
• Savings – use credit unions or CDFIs

It makes sense that investment for a non-profit and their employees would be in-line with the value of the organization.

For example:
• an environmental non-profit may not want to be invested in fossil fuel companies and they may want to provide investment options so that employees don’t need to invest in funds containing these companies. They may want investments that engage with companies to require disclosure of their environmental impact. They may want some investments in renewable energy.
• a border organization may not want to invest in private prisons and immigrant detention centers.
• SRI can provide investment options that align with a church’s, synagogue’s, or mosque’s values.
• an LGBT rights non-profit might want investments that engage with companies to promote diverse boards of directors, pay equality improve diversity policies.
• organizations interested in politics may want their investments to advocate to disclose political spending by companies.
• community development organizations may want some of their investments directed towards affordable housing, education projects, environmental sustainability, health, microfinance, and sustainable agriculture.
• an organization working to reduce drunk driving should have the option not to be invested in alcohol producing companies

This can easily be done without sacrificing financial returns.

Over $12 trillion of U.S. investments (26% of all investments) are in SRI. These investments use at least one of the three SRI strategies:

1. Screening
2. Shareholder Advocacy
3. Community Investments
Some of the main reasons why SRI is more attractive now than in the past, include:
• There are more socially responsible investments available. There are currently about 925 SRI funds.
• SRI mutual fund performance has improved. Increased competition and size of these funds has allowed the administrative costs to be lower.
• There are companies and industries people do or do not want to support and there is more information readily available than ever before.
There is no one strategy to move your portfolio closer to your values as there is no one reason that motivates people to participate in SRI.

Screening

Screening involves using positive and negative filters to select investments (avoid or include investments). Companies may be excluded or included based on their:
• Industries – exclude all (like oil) or best of the worst (like BP) or focus on alternative energy
• Country – avoid if regime has poor human rights record
• Corporate SR – promoting women, impacts on community, environmental impacts, fair trade producs
• Policies & Practices – Unions, Healthcare, recognize domestic partners

Shareholder Advocacy

Shareholder advocacy is exercising your right as a shareholder (through SRI mutual funds or individual stocks) to influence the direction of business. Index and non-SRI funds generally do not vote or vote with management on environmental, governance and social (ESG) issues. Shareholders can:
• Voting of Proxies – All shareholders may vote on annual meeting agenda items
• Letters – Letters may be sent any time (all public companies have Investor Relations Depts.)
• Filing Resolutions – Shareholders may petition companies they own shares in (at least $2k), for annual meeting agendas. Resolutions often pass with less than 30% in favor
• In-person meetings/dialogues – Letters and resolutions may lead to discussion of issues with company executives
• Divest – sell your shares

Some of the top ESG shareholder issues are:
• Political contribution
• Climate change
• Equal employment
• Environmental management and reporting
• Board diversity
• Executive pay

Community Investments

Provide access to credit, equity, capital, and basic banking products that low-income communities who would otherwise lack.
Participation in community investment includes:
• Investing in micro-credit organizations through notes
• Using member owned credit unions or community banks for your banking services

How to Construct an SRI Portfolio

Work with your financial advisor to determine your risk tolerance and investment objective. Depending on your situation you can develop an SRI portfolio by using:
• Individual stocks
• SRI mutual funds
• SRI exchange traded funds (ETFs)
• Community development loan fund
• Managed accounts (from asset management firms)
• Or a combination

Non-profits can incorporated Sustainable Responsible Impact Investing in their finances to further support their mission, through their:
• Retirement Plans – provide SRI options (401k’s or 403b’s)
• Foundation investments – follow investment policy with SRI investments
• Savings – use credit unions or CDFIs