Socially Responsible Investing – Is It Right for You?
By Cheryl Harbour

The spending, saving and investing habits of baby boomers have been well studied, and it’s no wonder. Baby boomers are projected to have 70% of all disposable income in the U.S. over the next five years.

Baby boomers have long held the record of being the richest generation in history. Analysts are predicting that much of that wealth will be passed down to their descendants, including millennials, which because of their numbers, will then become the richest generation in history.

But for the moment, baby boomers and millennials have different investment strategies. When it comes to mutual funds, baby boomers account for 40% of mutual fund ownerships and 53% of mutual fund assets. Millennials, on the other hand, are leading the way in a relatively new and growing type of investing: socially responsible investing or “SRI.” This means that investors choose to invest in companies involved in businesses and business practices that align with their own values – whether the focus is protecting the environment, improving working conditions, fostering gender equality, or another type of activity.

Americans in their 20s and 30s are twice as likely as investors in general to invest in companies based on SRIs. A  Morgan Stanley study found that nearly 86% of millennials are interested in SRIs compared to 75% of the general population. A new term “ESG” is being applied to investments that are screened specifically for environmental, social and governance factors.

One explanation for why baby boomers may be slow to warm to this type of investment is that many of their investments were made before SRIs were an option. Another is that as baby boomers approach retirement, they are less likely to want to “experiment” with different types of investments. 

According to an article in USA Today quoting Wealthsimple, here are some types of investments that can reflect your intentions and become part of your SRI portfolio:

  • Low carbon – companies that are less dependent on fossil fuels.
  • Clean tech – companies that make solar panels, wind power systems, metal recycling, etc.
  • Socially responsible – this may eliminate companies involved with alcohol, tobacco, gambling, civilian firearms, military weapons, and adult entertainment.
  • Gender diversity – companies with more women in top management positions or as board members.

Some people date the birth of socially responsible investing to 1970 when consumer advocate Ralph Nader succeeded in getting two resolutions related to two social issues on the annual meeting proxy ballot of General Motors, the first time the SEC permitted such issues to appear on a proxy ballot. As time went on and more mutual funds were created with specific criteria related to social concerns, an index -- The Domini Social Index -- was launched to measure results and compare them to other types of funds. The appeal of SRIs and ESGs seems to keep growing.

As Kiplinger.com points out: “Assets invested using SRI strategies totaled nearly $7 trillion in 2014, a 76% jump in just two years, according to the Forum for Sustainable and Responsible Investment. One out of every six dollars managed professionally in the U.S. today is invested using an SRI strategy.”

Now the big investment question: Do SRIs and ESGs perform as well as other investments? Here is a key conclusion related to ESG’s from a study by MSCI, an independent provider of research-driven insights and tools for institutional investors: if you’re going to invest in an ESG, a rating does matter because higher ranked ESG companies tended to be more profitable and paid higher dividends than lower ranked firms and showed lower incidents of idiosyncratic risk as measured by large stock drawdowns.

 If you find this background on SRIs interesting, you can read more here.

Most investment advisors can answer your questions about socially responsible investing.




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