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Do Well by Doing Good

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Updated July 22, 2020

Yan Arsenault CFA®, CAIA, Chief Investment Officer

Socially responsible investing allows you to make money while making the world a better place.

Making money feels good, but what if you could help the planet at the same time? The primary motive for investing doesn’t have to be purely financial anymore. In fact, many investors today are using their wallets to make the world a better place.

Interested? Welcome to “socially responsible investing ” (SRI), also known as “ ethical investing ” or “sustainable investing.”

SRI is an investment discipline that incorporates ethical, religious, social and moral values into the investment decision-making process with the goal of producing a positive societal impact.
SRI probably dates back to the 1750s as it has been reported that the Religious Society of Friends (Quakers) prohibited its members from participating in buying and selling humans (slave trade). In the 1990s, socially concerned investors sought to mainly address issues related to addictions. Recently, the focus has shifted to promoting a clean environment and addressing climate change.

The “Old” and the “New” SRI

In the days of “old” SRI, socially concerned investors used “negative screening ” to exclude “sin” companies from their investment universe. What was left to choose from was then analyzed using traditional financial data analysis (sales, margins, market share, profits, etc.) to construct the SRI portfolio. As a result, industries such as tobacco, gambling or liquor were often excluded on moral or ethical grounds alone.

Today, the use of “negative” screens has diminished and the discipline has evolved. “Positive” screens are now more commonly used (the “new” SRI). Rather than excluding companies and industries right away, socially concerned investors now look at identifying the most responsible companies in their investment universe across all industries based on multiple social, environmental and governance (ESG) factors.

Factors such as energy consumption, carbon emissions, labor practices, human rights, product safety, shareholder rights and corporate oversight are weighted and incorporated into the investment decision-making process in combination with traditional financial data analysis to construct the SRI portfolio.

Wallets Can Make a Difference

In the past, “old” SRI funds have been criticized for not being well diversified and often generating smaller returns than unrestricted investing. But a growing body of research suggests that the integration of ESG factors into the analysis has improved the outcomes and greatly reduced performance drag versus traditional funds and benchmarks.

In short, sustainable investing today doesn’t require a financial trade-off. Money matters, and it can go a long way toward helping to achieve the greater good. If you have an interest in SRI, please contact us for a free consultation.

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Yan Arsenault CFA®, CAIA, Chief Investment Officer