Investing With a Conscience

March 4, 2016

Investing isn’t easy — choosing among stocks and bonds, potential growth versus safe investments, bulls v. bears. It’s always a chancy proposition.

Now, consider investing not only from a monetary angle, but from a social and/or environmental perspective, and you’ve further upped the ante. So which is it — money or good deeds?

The two needn’t be mutually exclusive, though trying to invest with one eye on the bottom line and one on the actions of the companies in question can be challenging.

Zach Liggett, a portfolio manager at FIM Group in Traverse City, calls this perspective the triple bottom line.

“It’s more than just financial factors,” said Liggett.

“It’s financial return, social return and environmental return.”

He noted the latter two are largely subjective. “As a financial advisor, part of what we can do is listen intently, then help [clients] customize a broad financial plan: how they spend money, how they make money and how they give money,” he said.

Debbie Craig, financial advisor and principal at Craig Wealth Advisors in Alden and Traverse City, said investing in concert with values has been around for many years.

“It came to the forefront in the ‘70s and ‘80s. It’s a reflection of our times,” she said.

Socially responsible investing actually reflects a lot of “times” and boasts a fascinating history. In the early ‘70s, it was a weapon against apartheid, as cities, states, colleges, faith-based groups and pension funds throughout the U.S. began divesting from companies operating in South Africa.

In the ‘50s and ‘60s, trade unions used multi-employer pension fund monies for targeted investments. Throughout those decades, socially conscious investors sought to address equality for women, civil rights and labor issues.

The practice actually dates back to the 18th century or earlier. In 1744, John Wesley, one of the founders of Methodism, outlined his basic tenets of social investing. His famous sermon No. 50, “The Use of Money,” warned people against harming others via business practices and asked them to avoid industries that could harm the health of workers. In 1758, the Religious Society of Friends (Quakers) prohibited members from participating in the slave trade.

While socially responsible investing may refer to avoiding harm by screening companies included in a portfolio, the term is also used more broadly to include proactive practices — seeking out companies that are “doing good.”

John Marshall, a certified financial planner with Crooked Tree Capital Advisors in Petoskey, breaks the concept down into two primary categories.

“There are two areas I’m aware of: sustainable investing and socially responsible investing,” he said.

“Sustainable investing is companies that are environmentally focused,” he said, mentioning areas such as climate change and pollution. These investments could include focusing on solar energy, wind energy, recycling and environmental cleanup.

“Socially responsible investing is screening out funds like tobacco, alcohol, gambling, stem cell research, etc.,” said Marshall.

Liggett adds another element to the mix, looking at companies that are progressive in terms of their hiring and workplace practices, such as hiring women and flexible benefits.

“It’s the quality of the company,” he said. Daniel Kern, chief investment strategist for TFC Financial Management in Boston, noted that most major investment firms are offering, or are considering offering, sustainable investment strategies.

Writing on the ThinkAdvisor website, Kern gave several examples: BlackRock created a dedicated division focused on sustainable investing, Goldman Sachs acquired an ESG-focused firm (environmental, social and governance) and Merrill Lynch and UBS are among the retail broker-dealers that have launched, or plan to launch, responsible investment platforms.

While it may be an increasingly wellknown concept, socially responsible investing is not necessarily a growing trend in this region. Craig estimates five percent of her clients are aware of, or interested in, investing their money in that direction. Marshall said that he doesn’t have any clients that specify socially responsible investing.

Only Liggett said that the approach is the rule, rather than the exception, and it has been since founder Paul Sutherland opened the FIM Group in 1984.

“I don’t think you need to separate the triple bottom line from regular investing,” he said.