Socially responsible investing goes mainstream


By Drew Watson, CFP



Selecting investments based on both financial considerations and personal values is nothing new in the investment universe. But what was once considered a “fringe” strategy is becoming an increasingly mainstream approach. Today, there is an increased awareness that choosing opportunities now referred to as Sustainable and Responsible Investing (SRI) can create good investment value.

The concept has matured in recent decades. At one time, much of the focus of SRI was to screen out specific types of companies, such as corporations involved in the tobacco business or defense contracting. The primary emphasis for socially responsible investors was on the values of a specific company, with its financial prospects playing a secondary, though still important role.

Today, there is an increasing belief that companies with a focus on environmental, social and governance factors may ultimately be more profitable. Professional investors who focus on SRI now seek to identify companies that are positioning themselves for long-term success by taking a more socially responsible approach. This may create better investment opportunities for individuals seeking to pursue a values-driven style in their own portfolios.

Different approaches to “investing for good”

Determining what suits your own preferences as a socially responsible investment is clearly a personal decision. Some of the approaches used today include:

Avoiding specific investments—staying away from investments in what some would refer to as “sin” stocks, such as tobacco, alcohol and gambling firms. This “negative screening” process can also include companies involved in the defense business or in certain industries that may have a harmful impact on the environment (i.e., oil companies, pesticide manufacturers).

Investing in companies that promote causes—this may include firms focused on sustainable approaches to growth that consider what’s best for the health of the planet, for example. In other cases, it might be firms that promote specific social stances such as worker’s rights.

Investing in firms in specific industries—companies that address long-term societal issues, such as clean energy or responsible water usage, may be attractive to some investors.

Investing for a social purpose does not necessarily mean compromising financial objectives. The most effective SRI strategy continues to be focused on the financial fundamentals of an investment, while considering other factors, like those listed above, as part of the screening process. In short, you as an investor are still seeking to make a profit and achieve specific financial goals, but you are finding ways to do so with a sense that your investment benefits the world in a broader way as well.

How individuals can pursue their own SRI strategy

Investing in a socially responsible way is not limited to buying individual stocks or other investments. There are a variety of mutual funds, for example, that offer different approaches to sustainable and responsible investing.

Most of these are stock mutual funds that are centered on the actions of specific companies. There are also bond funds that invest in debt issued by governments and corporations aimed toward positive environmental and social development.

If you participate in a pension plan at work, your plan may pursue SRI approaches within its portfolio. One other alternative is to consider direct investments in community-based organizations that will use raised funds to pursue its objectives and still pay investors a return. Talk with a financial professional about finding ways to align your values with your financial goals and long-term objectives.

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By Drew Watson, CFP

William “Drew” Watson, CFP®, is a Financial Advisor and Private Wealth Advisor with Ameriprise Financial Services, Inc. in Owensboro, KY. He specializes in fee-based financial planning and asset management strategies and has been in practice for 20 years. To contact Drew’s office by phone, call 270-684-8424, or by mail, send correspondence to 111 West 3rd St, Owensboro, KY 42303. Please visit Drew’s website at www.williamawatson.com.

William “Drew” Watson, CFP®, is a Financial Advisor and Private Wealth Advisor with Ameriprise Financial Services, Inc. in Owensboro, KY. He specializes in fee-based financial planning and asset management strategies and has been in practice for 20 years. To contact Drew’s office by phone, call 270-684-8424, or by mail, send correspondence to 111 West 3rd St, Owensboro, KY 42303. Please visit Drew’s website at www.williamawatson.com.

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