Image via WikipediaAmidst a seemingly omnipresent specter of a double-dip recession in the U.S., recent world market jitters have thrown into
high relief the precarious state of the global economy. But a lesser known phenomenon is beginning to rise above the turmoil: The relative success of what is known as "socially responsible investing," or SRI.
high relief the precarious state of the global economy. But a lesser known phenomenon is beginning to rise above the turmoil: The relative success of what is known as "socially responsible investing," or SRI.
According to the Social Investment Forum, 65 percent of the 160 socially responsible mutual funds outperformed their benchmarks in 2009. Meanwhile, a majority of large-cap SRI funds — those which deal with companies valued in the billions of dollars — outperformed the S&P 500 over 10 years.
What's more, SRI itself continues to grow every year, moving away from simply screening out specific industries like tobacco and weapons, and towards "positive screening strategies" that target socially and environmentally responsible companies and sectors.
In fact, according to SIF, SRI "now encompasses an estimated $3.07 trillion of $25.2 trillion in the U.S. investment marketplace today." Nearly one of every eight dollars under professional investment in the U.S. is involved in some aspect of socially responsible and sustainable investing.
"Companies thinking about, for example, how to better manage pollution, or how to be more energy efficient, tend to be forward-thinking companies focused on the long-term," said Mike Smith of the Progressive Asset Management Group of Newfields. "In short, they tend to have better management and better corporate governance. Better managed companies in turn tend to be more profitable, which is reflected in their stock price."
While the phenomenon might seem new, SRI has played an important role in global economics for centuries. In the United States, the Quaker community has been putting into economic practice their uniquely progressive values since the 17th century. But even up until the 1980s and '90s, the prejudices against SRI tended to follow a misguided script: "It's a hippie thing" or "If you invest that way you'll have to sacrifice returns."
Not so, Smith says.
"The more studies that come out reflecting the contrary, the more it becomes clear that these funds are on par with and, in some instances, outperform more traditional investments," he said. "You can follow your values with your investments and not have to sacrifice financial return."
Smith is quick to point out that even SRI is not totally immune to market volatility, touting a common-sense approach toward managing a portfolio.
"We still need to use good, basic investment strategies, like diversifying a portfolio, setting up a proper asset allocation and looking carefully at risk parameters and timing before investing," he said.
The diversity of SRI products helps with performance. SRI vehicles can include stocks, bonds, mutual funds and private equity, just to name a few. Smith said these can include vehicles such as "Build America Bonds," created under the American Recovery and Reinvestment Act of 2009, and community loan funds.
"Most community loan funds serve low-income communities, either domestically or internationally, and it's interesting to see how the default rate on their loans is usually so low," Smith said. "It's great to see how most people in these low-income communities are diligent about paying these loans back and this can make these funds a reliable part of an SRI portfolio."
Smith is a part of a group of investment advisors who offer a "triple bottom line" investment approach — a "big picture" strategy that cites "people, planet and profits" as its chief focal points.
Founded in 1987 as the first investment firm to specialize in SRI, the PAM Group now serves as the socially responsible division of Financial West Group, providing a full range of socially and environmentally sustainable investment services including portfolio management, private placement opportunities, retirement planning, education funding and more.
The PAM Group's Newfields-based branch has taken that ethos to include bolstering the region's growing green sector. Earlier this year, Smith and partner Hunter Brownlie became the sole investment company in the Green Alliance, the Portsmouth-based "green business union" that helps certify and promote sustainability-minded companies throughout the region.
For Smith, joining the alliance helped solidify his and Brownlie's conviction that theirs was a customer base well positioned to appreciate PAM Group's unique, forward-thinking approach.
"People in the Seacoast area tend to be progressive and to have an outlook that's open to sustainable investing," said Smith, whose office even purchases carbon offset credits for business-related travel. "But even in parts of the region which are traditionally thought of as more conservative, people are beginning to recognize that socially and environmentally sustainable investments can also be fiscally responsible as they help identify hidden risks and liabilities, which may have a negative impact on earnings, and in turn, stock performance."
source: seacoastonline.com
source: seacoastonline.com
