How Investors Can Try to Make Money and Make a Difference

What are you invested in?

Many fund investors don’t really know what companies or industries they’re supporting with their investments. You may be concerned about gun violence, but your investments could be supporting companies that produce automatic weapons. You may want diversity in the workplace, but your fund may own companies that don’t have a single woman on their board of directors.

Many people these days realize that their purchases have an impact, and they want their investments to have a positive influence on the world. Given the choice between two companies—or two funds—that have similar returns, these investors prefer to invest in the one that is more environmentally friendly or that’s focused on worker safety.

Of course, these investors still want their investments to grow over time, but they also want to support the companies and issues that they believe in, and there are a growing number of mutual funds that aim to help them do just that.

Does your fund invest in a sustainable way?

How can you find funds that are trying to invest in a positive way? Start by looking for sustainable responsible impact or socially responsible investing (SRI) funds. These funds are often easy to spot because they have “sustainable” or “socially responsible” in their name.

SRI funds typically invest in companies that have strong environmental policies, social programs and corporate governance practices. This is a way for funds to support companies that are trying to do the right thing, and it’s also a potential way to mitigate risk. A company that makes money based on limited resources, questionable ethics or unfair treatment of its workers may face new regulations or costly lawsuits that could hurt its bottom line.

Many SRI funds also actively work to improve corporate behavior. Funds engage with companies by voting proxies, meeting with management and even filing shareholder resolutions in an attempt to make companies better investments and better corporate citizens.

There are also a number of funds that own companies with good environmental, social and governance (ESG) policies, but these funds don’t self-identify as SRI funds. These funds usually aren’t required to seek out companies that are trying to make a positive impact; they’ve often bought these companies for other reasons—perhaps the stock has good growth characteristics or the fund manager believes the stock is trading at a discount.

Sustainability ratings from companies like Morningstar or MSCI can help you find these undiscovered sustainable funds.

How to choose which sustainable funds to own

There are hundreds of sustainable responsible impact (SRI) funds available today, and if you include other funds based on good sustainability ratings, then you’ll have even more funds to chose from. This can make it challenging to decide which funds to own now.

Some investors look for funds that focus on one particular issue, but most people care about more than one issue. In fact, a Calvert Foundation survey found that 78% of investors in sustainable funds were interested in three or more causes.

We believe the best approach is to consider a diverse mix of sustainable funds and then invest in the funds that have strong recent returns. That’s how we’ve been managing sustainable portfolios for our private clients for more than 20 years. This approach allows investors to own funds that have the potential to help them build a better world and build wealth at the same time.

Diversification does not assure a profit or protect against loss in a declining market.

Publication Date: Autumn 2016