ILLUSTRATION BY JONAN EVERETT
Socially Responsible Investing Options for Politically Correct Savers
Featured image art by Jonan Everett.
Now that some environmental, social, and governance (ESG) investments offer competitive returns, younger savers are increasingly investing their money in socially responsible ways, according to a new Cornerstone Fund study.
“Millennials, especially, are taking an active role in the social-justice issues of the day, and as they are able to save, it’s no surprise that they’re saving and investing their dollars in socially responsible ways,” says Maria C. Coyne, president and CEO of the Cornerstone Fund, a socially responsible faith-based investment firm.
The Stats on Socially Responsible Investing
The Cornerstone Fund study found that 40 percent of millennials invest with organizations that engage in social justice, environmental sustainability, alternative energy, and clean technology efforts.
“Companies with good governance tend to avoid major lawsuits or issues we see in the news that can dismantle a company in a matter of minutes or weeks,” says Scott Arnold, a registered investment adviser. His firm, IMPACTfolio, is 100 percent invested in ESG vehicles.
“From a risk-mitigation standpoint, ESG and impact investing are the only ways to properly manage money for the best long-term results,” Arnold says.
Ten-year average annual performance ranged from 6.05 to 7.49 percent for ESG investments compared with 7.31 and 7.35 percent for the S&P 500 and Russell 3000 indexes, respectively, according to a TIAA socially responsible investing performance analysis.
“We use an assortment of low-fee exchange-traded funds [ETFs] and mutual funds that screen the underlying holdings for ESG factors to create a diversified portfolio aligned with clients’ goals and risk tolerance as well as their values,” says Morgan Ranstrom, a chartered financial analyst and cofounder of Trailhead Planners.
A recent BNP Paribas report found that 60 percent of investors are putting their money in sustainable investment opportunities, such as green bonds and sustainable bonds.
Socially Responsible Investing Options
Toyota’s Asset Backed Green Bond is one example. Proceeds of this particular green bond are used to fund new retail finance contracts and lease contracts for Toyota and Lexus vehicles that meet specific criteria for power trains, fuel efficiency, emissions, and more.
These days, there are more socially responsible investing options than ever for millennials to explore and choose from.
According to the Forum for Sustainable and Responsible Investment (US SIF), total U.S.-domiciled assets under management using socially responsible strategies account for more than one in every six dollars under professional management in the United States.
For example, Arnold manages multiple ETF portfolios that invest in low-cost index funds with an ESG mandate and a high ESG score. There are no minimum investment requirements to start. “It keeps the costs and transaction fees lower for our clients,” he says.
Tailoring Investors’ Portfolios
When clients have a strong pull toward a particular cause — such as gun control, clean water, or women’s equality — Steven Briggs, a fee-only financial planner, takes the time to research asset classes that his clients can then add to their savings portfolios.
“Given the young age of millennials, I like stocks and mutual funds that invest in socially responsible stocks because of the diversification and oversight that fund managers provide, which is prudent for the client,” Briggs says.
If financial adviser Lorri DeFoor’s clients don’t broach the subject of saving money in socially responsible ETFs, mutual funds, or stocks, DeFoor considers it due diligence to present these alternative options.
“When offered the opportunity, many of my clients say yes to investing in a company that is sustainable and has a strong growth outlook that is good for the world and society,” DeFoor says. She uses screening tools such as Morningstar’s ESG Rating, MSCI, and Natural Investment’s Heart Rating scale to find investment vehicles that fit the social causes her clients want to invest in.
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