Green and Values Based Investing

Whether you call it sustainable, socially conscious, green or ethical investing, socially responsible investing (SRI) encompasses investment strategies that seeks to consider both a financial and social return on investment.

History
The roots of the SRI movement in America go back to the Quakers in 1758, which prohibited followers from engaging in financial activities associated with the slave trade. In more recent years, the SRI movement gained a foothold in the 1980s with the introduction of socially and environmentally responsible mutual funds, offering investors an easy way to align investment dollars with personal values.

How It Works
Managing a social investment portfolio is no more complicated that managing any other type of investment portfolio. Investment managers and analysts apply the same level of due diligence and stringent financial screens to the portfolio’s underlying investments. Once a pool of investments are selected that meet the portfolio’s financial criteria, social and/or environmental screens are added as part of the investment selection process. Investments that don’t meet the social or environmental criteria are then eliminated from the pool of potential investments at this stage.

Depending on the stated objectives of the SRI portfolio, it may include companies that encourage practices such as workplace diversity, environmental stewardship, human rights, consumer protections and more. Or they may avoid investment in companies engaged in certain sectors or industries altogether, such as oil and gas drilling, tobacco or alcohol.

How SRI Stacks Up
A frequent question investors ask is “How do socially responsible investments perform in comparison to investments that do not incorporate SRI criteria or screens?” SRI portfolios are subject to the same broad range of influences that impact all investment strategies, including market fluctuations, individual portfolio manager decisions, economic conditions, global and domestic events, etc. As a result, the number of variables that may influence an individual investment or portfolio’s performance at any given time make it hard, if not impossible, to determine in any definitive sense the role that specific social criteria or screens may have on the portfolio’s performance.

A March 2011 report from GovernanceMetrics International, Inc., titled: Ten Things to Know About Responsible Investment and Performance,* authored by Kimberly Gladman, CFA, Ph.D., reviewed more than two dozen studies, abstracts and research papers on the topic. The report stated: “The general consensus is that on average, responsible investment methods perform on par with conventional techniques, neither outperforming nor underperforming them on a regular and reliable basis. The research shows that on average and in the aggregate, SRI portfolios perform comparably to conventional ones.”

It’s important to remember, however, that no strategy ensures a profit or protects against loss. Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results.

How We Can Help
At Capital Intelligence Group, we can help investors who seek alignment between their investment dollars and the social and environmental principles they embrace. We would be happy to discuss your needs and help structure an investment portfolio that is a true reflection of your goals and values.

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*© 2011 GovernanceMetrics International, Inc. All rights reserved. No part of this publication may be reproduced, republished, altered, posted, transmitted, or distributed without written permission from GovernanceMetrics International, or, in the case of photocopying, under the terms of a license issued by GovernanceMetrics International.