By Jason R. Lilly, Michael Kiceluk, and Craig Oliveira

Investors today are thinking more and more about how to align their investing decisions with their values. Socially Responsible Investing is one strategy that is emerging to help achieve this objective.

Socially Responsible Investing goes by many names. Green Investing, Environmental Social and Governance Investing, Mission Aligned Investing and Faith-Based Investing all fall under the umbrella of Socially Responsible Investing. SRI provides investors with a portfolio where investment decisions are made on values-based criteria in addition to traditional financial-based criteria. A socially responsible portfolio can be aligned with the individual’s personal value system, religious beliefs or the mission of a nonprofit group.

The Rise of SRI

While it may seem like Socially Responsible Investing would be a niche market, data is showing the opposite. According to the 2016 Report on U.S. Sustainable, Responsible, and Impact Investing Trends (published biennially by US SIF, the Forum for Sustainable and Responsible Investing), investors are increasingly putting their money into SRI portfolios. Currently, one out of every five dollars professionally managed in the United States is invested according to an SRI mandate. In dollar terms, socially responsibly invested assets in the US surpassed $8.7 trillion in 2016. Globally, adoption of SRI portfolios is slightly higher – rising to 25 percent of professionally managed assets.

Additionally, the growth of Socially Responsible Investing is increasing significantly. Between 2014 and 2016, SRI-managed assets in the United States grew 33 percent. And all signs point to that growth continuing as several public pension funds, municipalities, foundations and endowments have announced their intent to adopt socially responsible investment strategies in all or a portion of their investment portfolios.

Joining these institutional investors in moving money into socially responsible portfolios are individuals. In an April 2017 report published by asset management firm Eaton Vance entitled Responsible Investing is Good Business, 71 percent of investors are interested in sustainable investing.

Why Care About SRI?

SRI and ESG portfolios allow an investor to avoid certain companies and industries that might not be the best fit for their values, while investing in firms that comport with issues about which the investor feels passionate.

Traditionally, the SRI screening process eliminates companies involved in the production of alcohol, tobacco, firearms or nuclear energy, while ESG screens take that practice one step further and promote investing in firms or industries that act as best-in-class leaders on environmental, social and governance issues. Investment accounts can be individualized to include additional criteria, such as a portfolio free from fossil fuel exposure or a portfolio focused on gender equality or animal welfare rights, to provide just some examples.

On the fixed income side, there are a variety of options for investors. “Green bonds” are debt instruments issued by municipalities or organizations where the money received from the sale of the bonds are restricted to “green” initiatives. Municipal green bonds are primarily issued to raise money for public transit projects, which attempt to reduce carbon emissions and thereby combat climate change, or to fund water projects. Historically, the single largest issuer of green bonds in the United States has been the Commonwealth of Massachusetts – issuing more than $1 billion in green bonds between 2013 and 2015.

Recently, U.S. corporations have begun to enter the green bond market, earmarking proceeds from specific debt issuances for green causes. Municipal or corporate green bonds are available to be purchased as individual investments or through mutual funds.

Is SRI Right for You?

A well-crafted socially responsible portfolio takes specific parameters into account, without sacrificing the potential for financial returns. In fact, there is a high correlation between companies scoring highly on ESG metrics and strong financial performance – and vice versa.

A SRI strategy also gives you the opportunity to align your portfolio with your individual values and beliefs. If you feel passionate about responding to climate change, advocating for human rights or promoting gender equality, these and countless other issues can be incorporated into your investment portfolio.

With over $8 trillion committed to responsible investing, there are many qualified investment managers; however finding the right manager and appropriate investment vehicle can still be a challenge. An advisor who has expertise in responsible investing can work with you to create an investment portfolio customized to your values and beliefs.

Jason R. Lilly, CFA, CFP®, is Chief Wealth Management Services Officer at Cape Cod Five Cents Savings Bank. Michael S. Kiceluk, CFA, is Chief Investment Officer at Cape Cod Five Cents Savings Bank. Craig J. Oliveira, is an Investment Officer at Cape Cod Five Cents Savings Bank. Learn more at capecodfive.com.

  • NOT A DEPOSIT • NOT FDICINSURED • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY • NOT GUARANTEED BY THE BANK • MAY GO DOWN IN VALUE