Getting Started in Socially Responsible Investing

The numbers are in and there’s no denying that the popularity of socially responsible investing is spreading. In 1995, the Social Investment Forum, a national trade organization, issued its first Report on Socially Responsible Investing Trends in the United States. It stated that SRI assets under management totaled $639 billion. When the group issued its most recent report earlier this year, total SRI assets were up to $2.71 trillion, a jump of 324 percent. That’s compared to an increase of 260 percent among the broader universe of all assets under professional management during the same period, according to the Social Investment Forum.

There are other indicators, such as the proliferation of SRI mutual funds, which suggests that investors see SRI as a viable strategy and are demanding more choices. But if you’re new to the approach, how do you get started? Just as with any investment concept it requires some forethought.

How socially responsible do you want to be? Certainly most people want to be responsible, but the restrictions you place on your investments depend on your beliefs and principles. Polluters are obviously out, but what about nuclear energy? It doesn’t pollute like coal, but . . . Do you object to animal testing? What if it saves human lives?

“When you’re starting out you’re going to do it in increments,” says Angela O'Neill, a financial planner with the Strebel Planning Group in Ithaca, N.Y. “There are few people who will just leap in. What restrictions do you have? How deep do they go? How much of your portfolio do you want to commit to community and socially responsible investing?”

Before you take that first step, think about what you’re trying to accomplish with your investments. If you simply have a “do no harm” philosophy you can be a rather passive investor in stocks. A more proactive approach could be to invest in alternative energy companies. If you want to have a more direct impact, you could look for community development opportunities.

Go with mutual funds. Any type of investing strategy, when done properly, takes time and effort. With socially responsible investing you add the work of filtering potential investments through screens, usually to make sure that they don’t violate any social or environmental criteria. That requires the technical resources to comb through companies and the sophistication to know where to look.

Many investors choose to place their money with a family of SRI mutual funds such as the Calvert Group, Domini Social Investments or Parnassus Investments and let the fund managers do the heavy lifting.

“It’s nearly impossible for everyone to be an expert in everything,” says Keith Springer, president of Capital Financial Advisory Services in Sacramento, CA. “That’s why mutual funds make sense. Finding the research is difficult. A company may be positive in one area but negative in another.”

In the early 1990s there were a handful of SRI-focused mutual funds. Today the SRI industry offers a full array of funds to suit most investors, from small cap to large cap, growth to value, domestic to international. Many of the funds have grown into the billions of dollars in assets under management.

Realize that a restricted investment portfolio will perform differently than one that’s unrestricted. If you were to create a portfolio that only invested in companies that operate in the United States, it would post different results from one whose companies operate internationally. Sometimes it would do better, other times it would do worse, depending on factors such as the economies in the U.S. and overseas.

The same applies to an SRI portfolio that has certain restrictions vs. a portfolio that might include tobacco stocks or companies who contract with suppliers who permit unsafe working conditions.

“There are companies that are doing bad things that are growing,” says O’Neill. “The companies that have restrictions to be responsible will sometimes cause a lag.”

Does that mean socially responsible investors sacrifice returns for beliefs? “They may in some periods, but they may not in other periods,” says O’Neill. “It depends on how the portfolio is set up. There may be periods of outperforming.”

Use an advisor who understands socially responsible investing. If you choose to engage a financial counselor, interview several and find out if they practice SRI. Ask about SRI stock and bond funds. Talk to them about screens they use. Find out if they donate any of their sales to environmental groups or if they participate in any community activities.

Then remember that SRI is an approach that you’re trying to place upon the big picture of your financial plan. Factors such as your age, tolerance for risk and financial goals need to be included. Look for an advisor who’ll help you step back and see it all. The Social Investment Forum offers a list of financial planners involved in SRI.

“Just because you want to be socially responsible don’t ignore the other steps in building a portfolio,” says O’Neill.


Keith Springer is Registered Investment Advisor and President of Capital Financial Advisory Services, providing Wealth Management, advanced Retirement Planning and Mortgage Consulting Services. For more information, please contact Keith Springer at 916-925-8900 or Keith@KeithSpringer.com