Making a Difference with Your Investments

By Consuelo Mack

“Greed is good!” Was Gordon Gekko inadvertently right? Can you be greedy and good at the same time?

Nearly 500 mutual funds with more than $500 billion invested say yes you can! That’s how many funds now consider the environmental, societal or governance (ESG) policies of companies they invest in. That’s up from a mere 55 funds with only $12 billion worth of assets in 1995. Clearly something is going on in the expanding universe of what used to be a narrow niche called socially responsible investing.

About 25 years ago, socially responsible investing (SRI) was all about avoidance. Investors decided they didn’t want to own companies involved in “vice” industries such as gambling, alcohol, and tobacco. The negative list then expanded to arms providers and defense contractors and companies doing business with the South African government during apartheid and other targeted causes. A handful of mutual funds invested with those restrictions in place.

Since then the field of socially responsible investing has opened up to include any number of criteria ranging from a company’s energy efficiency, to labor policies to CEO pay. More investors are choosing companies based on the positive impact they are having on both their shareholders and “stakeholders,” which include employees, suppliers, customers, and the communities in which they operate.

The demand for ESG and SRI policies from big pension funds and other influential institutional investors is rising. According to a report by the Social Investment Forum Foundation on Socially Responsible Investing Trends in the U.S., “sustainable and socially responsible investing (SRI) in the United States has continued to grow at a faster pace than the broader universe of conventional investment assets under professional management.”

In 1995, the year of the Foundation’s first trends report, SRI-type investments were $639 billion. By 2010, they had jumped to over $3 trillion, a 380% increase. Conventional assets under management started from a much larger base of $7 trillion, but their growth to $25.2 trillion represents a much smaller increase of 260% in the 15-year period.

Wall Street is taking note. Some major wealth management firms have been offering socially responsible and ESG screens for institutional and high net worth clients for years. Recently Morgan Stanley Smith Barney introduced an “Investing with Impact Platform” for its individual retail clients, offering them the opportunity to pick and choose among multiple strategies involving stocks, sectors, mutual funds, and private investments to “align their financial goals and their personal values.”

Can you successfully merge your financial goals and your values? One of the biggest obstacles that impact investing practitioners have to overcome is the belief that the approach isn’t as profitable as conventional investing.

Well, is it? As in any other investment style, there are winners and losers. Christine Benz, director of personal finance at mutual fund ratings firm Morningstar recently highlighted three firms in her report, “These Socially Responsible Funds Strike the Right Balance.” It’s as good a place to start as any.

The funds Benz selected went through a multi-process screening focusing on funds that “balanced sector diversification with fairly strong long-term results.” They are TIAA-CREF’s Social Choice Equity fund, which is designed to offer investors the diversification and performance of the market but with a socially responsible tilt. Another is Neuberger Berman’s Socially Responsive Fund, a much more focused portfolio of only 40-50 stocks designed to outperform the market. The third is the Parnassus Equity Income Fund, a socially responsible fund focusing on both dividend income and growth.

Matching your values with your investments is an idea whose time has come.

Consuelo Mack is the founder, anchor and managing editor of Consuelo Mack WealthTrack, the only program on television devoted to helping individuals build and protect their wealth over the long-term. Consuelo has been called “The Best Money TV Host” by Money Magazine. Consuelo Mack WealthTrack airs weekly nationwide on public television and is available online at http://wealthtrack.com.