There used to be a time when you’d be hard-pressed to match your personal values with your portfolio. If you could grow it by investing in oil or tobacco, for instance, you didn’t concern yourself much with the damage those industries might have on future generations. Your goal was growing your wealth, not saving the planet. At best, you would try to do good by doing well — meaning, wealth first, altruism second.
Times have changed however and, increasingly, investors and their advisors are making decisions — and often trying to make an impact with their invested dollars — based on their core beliefs. The good news is there are more tools than ever to build portfolios that reflect your personal values.
Many names, one big goal
Values-based investing (not to be confused with value investing popularized by Benjamin Graham) goes by many names — ethical investing, SRI (Socially Responsible Investing) or ESG, which stands for environmental, social and governance factors, are a few of the most common. Whatever you call it, it’s not just a trend. It is here to stay.
Contrary to popular opinion, SRI is not just being driven by Millennials. According to recent polls, around 70% of investors, across the generational divide, say it’s important to them to invest in companies that reflect their personal values — like for instance renewable energy and electric vehicles.
I know that for a fact. Robust financial plans and positive returns aside, there’s little that makes my clients’ eyes light up more than bringing up the topic of values-based investing. It always makes for a great conversation.
The most important takeaway is that it’s possible to invest responsibly without sacrificing expected return. Thanks to technological advances, shareholder engagement and the democratization of social media, we now have the tools, will and ability to hold ourselves to a higher standard. Ethically sourcing raw materials, treating people well and considering our long-term impact on the environment make companies and brands stronger.
The truth is ethical tilts in portfolios already exist. Markets are quite efficient and the valuations of companies that score poorly when it comes to environmental, social, and governance issues reflect such behaviour. Adding an ethical tilt simply allows us to screen away companies that will continue to face regulatory, legal, and social media challenges before they fail or evolve. We already embrace financial planning and an investment discipline. An SRI portfolio simply means executing the same tried and true approaches while using ethical building blocks to efficiently capture market returns.
How to get started
Whatever socially responsible investing you’re considering, there a couple of things to keep in mind:
- Speak to your advisor — as always, share with them your goals, your concerns and your ideas. After all, that’s what we’re here for: to build a worry-free plan, manage your portfolio and uncover new investment opportunities that you can feel comfortable with.
- Ask yourself if values-based investing resonates with you. Your advisor can introduce a modest ethical tilt to your existing portfolio or aggressively screen away companies and behaviour that you would like to discourage. It’s up to you.
A little rational optimism: The world is full of challenges, but if we invest with our values in mind we lend our support day in and day out to companies that are innovating and improving the quality of life for all of us. That’s encouraging for you, the planet and our collective future.