Green Investing: More Than Being Socially Responsible
40 Years of Success
Green Investing has Sustainable, Socially Responsible Investing (SRI) at its core. The science of SRI has been meticulously honed by professional investors since the early 70’s. Individual investors have access to this accumulated knowledge through mutual funds and exchange traded funds – there is no need to spend inordinate amounts of time developing specialized expertise.
A multitude of independent studies and widely available public data confirm that Sustainable fund managers have shown excellent performance, and in some cases superlative performance, when measured against conventional strategies and industry standard benchmarks. Please go to the Resources tab to view current data on Sustainable Investing.
The Process and Pillars of Sustainable Investing
After a group of high quality stocks and/or bonds has been identified, professional sustainable fund managers apply an additional screening process to identify the best stocks and bonds for the fund.
The Sustainable/SRI screening process compares corporations (and in some cases governments) against their peers in three critical areas known as ESG:
(E) Environmental Impacts
(S) Social Impacts (Employee Culture)
(G) Corporate Governance
The reasoning is not hard to understand:
(E) companies that work to minimize negative environmental impacts are less likely to face expensive, damaging legal battles.
(S) companies that treat their employees well are likely to attract and retain the most talented, motivated and productive employees.
(G) companies with strong internal controls, a healthy gender balance at the executive level and independent boards of directors are more likely to make optimal strategic decisions.
Emphasis On Quality
A balanced portfolio requires diversification over a wide variety of industry sectors, countries and investing styles. Sustainable fund managers use the ESG screening methodology to sift out the very best investment opportunities within each of these “asset classes.”
At Green River, we take it one step further. We compare similar Sustainable funds to each other, and we strive to include the best sustainable funds in our clients’ portfolios. We are truly “fund family agnostic” and do our best to review funds from a variety of fund families. All of our recommendations are based on what is best for our clients.
The Inconvenient Truth
Many Investors Don’t Know
Some of the largest funds in the world are funds whose holdings mirror the S&P 500 Index. Many Financial Advisors routinely recommend these funds as core holdings for their clients. But according to FossilfreeFunds.org, 12% or more of every dollar invested in an S&P tracking fund goes to the fossil fuel industry (coal, oil and gas companies, and related industries). In addition, the S&P 500 Index contains three of the largest international tobacco companies.
The problem is that many ‘do-it-yourself” investors and mainstream financial advisors do not look beneath the surface of the funds they own/recommend, nor do they take the time to find cleaner, “greener” funds that avoid these pernicious industries. This is truly unfortunate, because there are numerous high performance funds available to all of us that avoid fossil fuel and tobacco industry stocks. While many individual investors are late to the party, Institutional money managers are well aware of the value of Sustainable E-S-G analysis: The US SIF 2016 Trends Report reveals that $1 in every $5 under professional management in the U.S. is now aligned with sustainable, responsible and impact investing strategies.
2017: Two Areas of Focus for the Sustainable Investing Community
FOSSIL FUEL-FREE/CLEAN ENERGY PORTFOLIOS:
Solar power tripled in United States in the last two years – and the world is now adding more renewable power each year than new capacity for fossil fuels.
Sustainable investors are helping fuel this rapid rise through investments in companies that support clean, renewable power.
A December, 2016 report by Arabella Advisors says that “On the one-year anniversary of the Paris climate agreement, the value of assets represented by institutions committing to some sort of divestment from fossil fuel companies has reached $5 trillion. To date, 688 institutions and 58,399 individuals across 76 countries have committed to divest from fossil fuel companies, doubling the value of assets represented in the last 15 months.”
GENDER EQUITY IN THE CORPORATE BOARD ROOM LEADS TO BETTER PERFORMANCE:
A number of leading sustainable fund families are using the percentage of women in top executive positions and on corporate boards as an important E-S-G criterion when selecting stocks and bonds for the funds they manage.
“We believe the research clearly shows that when women are in management and on corporate boards, companies simply perform better,” said Joe Keefe, CEO of Pax World Funds. “That’s why a more diverse workplace is not just the right thing to strive for, it’s a smart business decision.”
If your Financial Advisor has not mentioned the benefits of ESG sustainability screening, feel free to contact us for a no-cost consultation and initial recommendations for a “Sustainability Makeover.”
Investing involves risk. Depending on the different types of investments there may be varying degrees of risk. Socially responsible investing does not guarantee any amount of success. Clients and prospective clients should be prepared to bear investment loss, including loss of original principal.
Mutual funds and Exchange Traded funds are sold only by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money. Amounts in mutual funds and exchange traded funds are subject to fluctuation in value and market risk. Shares, when redeemed, may be worth more or less than original cost.
Patrick Costello is a Registered Representative of Cambridge Investment Research, Inc. Securities are offered solely by Cambridge Investment Research, Inc., Member FINRA/SIPC, a Broker Dealer. Advisory services provided through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor, located at 1776 Pleasant Plain Rd., Fairfield, IA 52556 (800) 777-6080. Green River Insurance and Financial Services is independent of Cambridge. J. Patrick Costello is insurance licensed in the State of CA, and is securities licensed in the states of CA, WA, NY and TX.