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Socially Responsible Investing and Millennials: Making a Difference with Money

Socially Responsible Investing (SRI) is an investment style that caters to environmental, social, and corporate governance concerns. A socially responsible investment has two mandates: find companies that promote positive social impact as well as offer opportunity for financial gain. As it turns out, the two are not mutually exclusive. For example, from 1990 through 2013 an investment in the MSCI KLD 400 Social Index would have produced a higher return on your investment than a buy and hold strategy with the S&P 500 Index.

Visually, the chart below dispels the myth that investors may sacrifice some potential gains in order to meet their socially-conscious investment objective. Instead, the opposite may be true. That is, socially responsible companies may make better products and earn more money for their shareholders, thereby creating long-term value through a higher share price.


As the markets have evolved so too have SRI objectives, driven by shifts in societal and investor values. The millennial generation is leaving its own mark on this style of investing. Past outperformance coupled with an attractive investment strategy has helped fuel demand for this product with younger investors.

Moreover, Eleonore Bedel, a Socially Responsible Investing product specialist at BNP Paribas, states that “Millennial clients are generally as interested in positive screening – investing in companies that they believe behave well – as they are in negative screening, that is, avoiding companies that they view as behaving badly.” During this screening process described by Bedel, a socially responsible investor will exclude investing in companies that cause environmental harm, do not advocate shareholder rights, or exhibit unfair social practices. Conversely, companies that have a proven track record for abiding by socially responsible practices are candidates for investment.

While selecting companies that behave well in the areas of the world in which they operate will provide a primary filter for the investment process, no investment should be made unless the company also abides by accounting and securities industry regulations. In the United States we use Generally Accepted Accounting Principles (GAAP) to guide companies in accurate financial record keeping and the Securities and Exchange Commission (SEC) provides regulatory oversight for the industry.

Furthermore, companies eligible for SRI should display a proven business model that provides an opportunity for you to profit. However, research is showing that millennials at large are more concerned with creating positive social impact with their money than being primarily profit driven. As the oldest millennials begin to accumulate meaningful wealth they are looking for investment products that cater to their core values. SRI can meet this demand and provide a strategic alternative to other forms of investing.

Investors can pursue SRI in both the public and private markets. That is, through investing in individual stocks, Exchange Traded Funds (ETF’s) and mutual funds, or private equity and venture capital funds. Socially conscious investors will find the easiest access to SRI funds through an ETF or a mutual fund. When planning to invest in an individual stock, you will need to perform your own due diligence and investigate whether the socially-conscious initiatives at a company meet with your standards. Elsewhere, private equity and venture capital have inherent risks that limit their investor demographic to High Net Worth investors.

No matter which investment vehicle you choose for SRI it is important to start saving as soon as possible to allow your money to begin working for you. Putting time on your side is a key element in successful long-term investing. SRI funds provide another accessible and viable investment product that will allow for you to apply these financial principles while not compromising your personal values.

For me, it is exciting to be a part of a generation that embodies an unrivaled social consciousness that also spans into investing. As millennials we can reshape the investment industry by driving innovation in socially responsible investment products and through encouraging corporate awareness that will ultimately help us satisfy one of our core values: Making a lasting impact.


As always, if you have questions or comments, feel free to send me a message. Thanks for reading.


John
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