Investing with a Conscience

socially responsible investing

September 4, 2018

Last weekend we made the decision to stop littering our lake home with plastic water bottles. Instead we now provide guests with reusable aluminum flasks filled with clear mountain tap water. During the week I read that Kroger would be phasing out single-use plastic bags. They plan to provide shoppers with reusable bags. British grocery stores have long been charging customers 5 pence (6 cents) a bag and shoppers have readily modified their habits to avoid the unnecessary expense. Plastic straws are also being phased out at fast food restaurants. Starbucks, for example, plans to have biodegradable straws in all its stores by 2020. Last Friday, Lego announced plans to eliminate its dependence on petroleum-based plastics and build its toys entirely from plant-based or recycled materials by 2030.

The younger generation has grown up keenly aware of protecting the environment and supporting worthy causes. Bombas, a manufacturer of socks, donates a pair to someone in need for each pair sold. The Company Store donates a comforter to a child in need on a “Buy One Give One” basis. Feed wants to end world hunger through the sale of home accessories, and each product is stamped with a number representing the number of meals your purchase will give a family in need. LifeStraw, a portable water filtration system, gives a child in a developing country safe drinking water for one school year. Warby Parker donates a pair of eye glasses for each one sold to one of its non-profit partners. The list goes on and on. Social responsibility is good for business.

Over the last decade we have become increasingly conscious of the preference of some clients to invest in socially and environmentally conscious companies. This area is known as Socially Responsible Investing (SRI). According to a 2013 US Trust survey, 1 in 3 Millennials were considering socially responsible factors when they made investment decisions. By the end of 2015, over 1 in 5 dollars of professionally managed funds were using one or more sustainable, responsible and impact investing strategies, according to the US SIF Foundation. Companies with high Environmental, Social and Governance (“ESG”) scores are mindful of their environmental impact; treat employees, customers and suppliers well; and have policies that align the interests of management and shareholders. According to ESG advocates, companies that stand out in these areas will be more successful over the long haul than companies that don’t. Examples of corporations on the “good” list include: Best Buy, Pepsi, UPS, Target, Cisco and Apple. Scoring low are giant oil companies like BP and Exxon, tobacco companies Altria and Philip Morris, Wal-Mart, Wells Fargo, News Corporation, and not surprisingly many companies from China and Russia.

From a performance standpoint, the jury is still out on whether SRI focused funds provide superior returns to the investor. Be that as it may, company behavior is coming under a lot more scrutiny in these areas and investors are increasingly paying attention to the ‘qualitative’ components of their returns.

Nick Hoffman