“How an investment makes you feel” is a concern that your average financial advisor will rarely take seriously, or even dignify with their attention. For them, the questions to ask are all of an extrinsic, not intrinsic or moralistic, nature. Here’s what you want from an investment: Higher returns, lower risk and an efficient tax structure that will work together to grow your accounts and provide income (for if and when retirement arrives). That is all you want, according to financial advisors. But for the would-be moral investor, you might have to be a little more careful. Even so, there are definitely ways to invest without selling your soul.
What if there were investment opportunities that were sourced from activistic humanitarian places? And what if these investments could even give you sizable returns on your initial investment? In reality, it is not so far-fetched. You just need to pay a little more attention, and maybe devote a tad bit more time to figuring out who and what you are investing in. But if you’re a little busy, the process can be expedited through helpful information services (*cough GenFKD *cough). So there is something called Socially Responsible Investing (SRI, for short), and it is all about gravitating toward humane and socially serving investments while steering clear of the investments that, upon doing research, have been shown to engage in “bad” activities.
SRI, for instance, used to be very vocal about demoting the tobacco, alcohol, gambling and firearm industries. They massively expanded during the era of The Vietnam War (I suppose because morally vagaries abounded at the time). Of course, in 2018, the social basis of SRI has evolved to include environmental, social and corporate governance (ESG) components.
How does SRI source “ethical” investments?
For starters, those companies that exclude fossil fuel holdings or individual companies which elect to only source their raw materials from ethical sources are always good investments (read: ethical, so very possibly profitable). For examples of ethically sourced raw materials, you can look to coffee producers who buy only fair-trade coffee beans, or supermarkets that only sell sustainably caught tuna. Starbucks and Costco have both taken these respective steps in recent years. You don’t need to get too obsessive about SRI’ing. Keep it simple: The idea is just to avoid “bad apples” (and you often know them when you see them. But do your research to be sure), and more importantly, to fund and invest in companies that do right by the environment, their employees and their communities.
Feeling hardcore? Participating in an SRI investment strategy is an excellent humanitarian way to invest, but it is also considered a “passive” approach. What is meant by a passive approach is that although investing in this manner does truly benefit the “goody-two-shoes” it does not actively target the “goody-two-shoes” that are actively, and measurably, benefitting their society (ya know, numbers, graphs, statistics, pie charts, etc.). Going from SRI investing to impact investing is like switching from a spraying shotgun to a precision sniper. Crude metaphor notwithstanding, impact investing is a very deliberate and precise investment approach, though they are both very good investment approaches.
Examples of impact investment firms making a difference are AllLife, which provides affordable life insurance to those suffering from chronic illnesses in sub-Saharan Africa, and Bridges Social Entrepreneurs Fund, which provides capital to under-financed social projects in the United Kingdom. These are only two examples, but if you have a mind to get involved in your own area, you can always look up an impact-investment vehicle nearby you. There is sure to be one. By the way: Here are a few more investment opportunities that are considered to be ethical by most benchmarks!
But you still haven’t mentioned profits
True. Here’s a little fact. In 2016, an estimated 21 percent of the $40.3 trillion under professional management in the United States were linked to an SRI-based investment strategy. This is up 33 percent since 2014. So, obviously, these “good” investments aren’t just bleeding hearts — they also are making dividends for their investors.
Milton Friedman, the 1976 Nobel Prize Winner in Economic Sciences, famously theorized that the cost of acting in a socially and ethically concerned manner would far outweigh any benefits in the long run. Firstly: this theory is focused on the economic benefit, which fails to account for the social or intrinsic benefits of acting ethically (but granted, we are talking money right now). So, on the money side of the issue, recent research has shown that returns from ESG, SRI and impact investment strategies can keep pace with conventional wealth management strategies.
The table below compares the Impact Investing Benchmark, tracked by Cambridge Associates, against commonly used market benchmarks (the generally non-ethical or not overly ethical traditional market benchmarks).
Do you think that you can’t make money and make a positive difference at the same time? Think again. In the increasingly humanitarian world in which we live (and thanks to the universe of investment options that we now have), the choice to align your investments with your moral compass is becoming more possible, and more convenient, with every passing day!
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