The topic of socially responsible investing (SRI) continues to gain momentum with investors. More frequently, we are seeing investors attempt to align their investment portfolios with their institutional mission or personal values. How one chooses to implement socially responsible investing can vary, from adhering to the U.S. Conference of Catholic Bishops criteria to mission-specific investments like education or women’s rights. “So many of our clients are asking questions about socially responsible investing this year,” says Jeff Mills, BMT Wealth Management’s Chief Investment Officer. “Between COVID-19, climate change and extreme weather, and social issues like racial and gender equity, many investors are demonstrating new interest in companies that take these complexities into account.”
As the field grows, several research providers (such as Bloomberg and Morningstar) are gathering more robust data sets and tracking companies on specific SRI metrics. With the help of these tools, BMT can carefully construct portfolios that meet any number of socially responsible guidelines. We are committed to helping all clients connect with your purpose and promise, including through the investment portfolios you create.
In our experience, investors often choose to implement an SRI focus to align their investment portfolio with their own values. BMT has experience building portfolios using a range of tools, including:
• Negative screens (excluding companies that fit certain criteria),
• Positive screens (targeting investments that score well on certain SRI measures), and
• Impact investing (looking for vehicles specifically designed with an SRI focus).
In fact, as more and more clients demand SRI investing, we have built new SRI-specific solutions.
“Sometimes SRI investing comes with the fear of missing out on returns,” Mills notes. Many investors assume that the restrictions or metrics one must adhere to when implementing a portfolio in this manner will be a drag on performance. But Mills shares good news: “The data does not support this hesitation, which is often cited by investors but runs counter to our experience.” In fact, according to Morningstar, investments that have been selected using environmental, social, and governance (ESG) factors have performed quite well.
In 2019, Morningstar released a new study on their universe of 56 unique ESG-screened indexes. The results show that performance across the indexes tend to be strong. Often, high ESG scores result in companies with healthier balance sheets and less volatility. For example, environmental considerations are often about controlling costs, reducing risk, and creating a business that is more sustainable. Specifically, Morningstar found that 41 of their 56 ESG indexes (73%) outperformed their non-ESG equivalents. “We do not believe investing with an SRI or ESG lens means sacrificing returns,” Mills affirms.
Last year was a turning point to social issues, many investors realized that ESG considerations – how employers treat employees, for example, or issues of diversity and racial equity in the workplace – can have a significant impact on returns. Although the U.S. has traditionally lagged behind Europe in ESG investment, we are seeing more investors turn toward socially responsible solutions recently. Last year has also seen strong performance from ESG funds, which engages additional investor interest.