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“Your guide to financial planning & socially responsible investing”
By: Judith L. Seid, CFP ®
President, Blue Summit Financial Group
Although past performance is not an indication of how a fund may perform in the future, a notable report recently released shows that Socially responsible investment funds outperformed their benchmarks in almost all asset classes last year, as investors look for companies that align their values and also provide good returns.
The Social Investment Forum (SIF) released its analysis earlier this year of 160 socially responsible mutual funds from 22 members of the forum, revealing that 65% of the funds in all asset classes outperformed their traditional non-socially screened benchmarks.
As reported by Robert Kropp of www.socialfunds.com, “If there was any air left in the old arguments against socially responsible investing (SRI) - primarily, that a restricted investment universe inevitably leads to lower return on investments; those arguments should be fully deflated by now, as the results of mutual funds performance in 2009 demonstrate”
As you have heard me saying for many years, “It just makes common sense.” If you want to have a portfolio with the best companies for the future, you must look at the non-financial criteria as well. The best way to avoid being invested in companies with exposure to pollution clean-up costs, regulatory costs, and litigation risk due to treating employees unfairly or the many other risks associated with irresponsible companies is to not have them in your portfolio. And although this study confirms what we think is the obvious, it is important to have these statistics to help dispel the long held myth about SRI performance. Cheryl Smith, chair of the SIF board of directors and president of Trillium Asset Management, http://trilliuminvest.com/ said, “This analysis underscores the reality that socially responsible investments offer what are genuinely competitive returns. It reaffirms and underscores that SRI investment strategies do not sacrifice returns.”
We have seen a maturing of the SRI choices available over the years and expansion of the screening criteria. In the early years of SRI, the screening was mostly negative, or avoidance screening. This meant that companies were excluded from a portfolio if they, for example, produced tobacco, firearms, pollution, etc. Today, not only has the list of screening criteria grown to include areas such as repressive regimes, gay rights, indigenous peoples’ rights, product safety, etc., but more money managers are using positive screening criteria as well. Positive screening criteria is used to proactively include companies that are doing things to address various social concerns, such as companies producing alternative energy, finding solutions to pollution, providing clean water, employing women on the board of directors, etc. According to the study, more than 50% of SIF member mutual funds consider companies’ executive pay practices when developing their portfolios, more than two-thirds look for companies with good records on climate change issues and community development, and virtually all exclude tobacco companies altogether from their portfolios.
Along with its study of the performance of SRI mutual funds in 2009, produced a Mutual Fund Performance Chart http://www.socialinvest.org/resources/mfpc/ . This study provides investors with information on the financial performance, positive & negative screening strategies, proxy voting information, and fund profiles, as well as performance data for one, three, five, and ten-year periods along with comparison to the benchmarks.
This study continues to add to the credibility of our industry and provides a backdrop for our clients to be discussing SRI as a positive influence on their investment returns.
Judith L. Seid, President and founder of Blue Summit Financial Group, Inc, is a Certified Financial Planner who has actively used Socially Responsible Investing (SRI) for her clients since 1992. She firmly believes that “We can influence corporations to change their policies by avoiding investments in irresponsible companies and by seeking investments in companies with positive practices and products.” Socially responsible investing (SRI) exists for investors looking to use the power of financial investment to create sustainable social change.
For more information on Sustainable Investing, contact Judith at Blue Summit Financial Group in La Mesa, (619) 698-4330; www.BLUESUMMITINVEST.com. Securities offered through Pacific West Securities, Inc. (Pacific West) Member FINRA/SIPC.Advisory services provided through Pacific West Financial Consultants, Inc., a Registered Investment Advisor. Blue Summit Financial Group, Inc. and Pacific West are not affiliated.
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