Over the years, I’ve found that there a number of obstacles that have prevented many socially concerned investors from investing their money in a sustainable and responsible manner. For some, it is an ingrained belief often perpetuated by the media that aligning your values with your money will lead to inferior results and will compromise your ability to achieve your financial goals. As I’ve written in several previous articles, I believe this to be a dated, misguided position which has been discredited by several major academic studies but will leave a revisiting of that discussion for a future piece. Perhaps the most limiting belief though among people who are concerned about the impact of their money is the notion that anything they do won’t really make much of a difference and that being “responsible” is an all or nothing proposition.
I’ve spoken with many people with environmental, social or governance (ESG) concerns who care deeply about various issues but haven’t integrated those beliefs into the way they spend and invest their money. One practical factor is that some people have limited access to socially responsible investments (SRI) in their retirement plans, which is often their biggest pool of investable funds. Another issue is that people sometimes feel that if they decide to become a socially responsible investor, they’ll need to invest all of their money in a manner that’s 100% aligned with their social and environmental priorities. While this is a worthy long-term goal, meaningful positive impact can be achieved in the shorter term by transitioning even a portion of their assets into SRI vehicles.
One practical, middle ground approach is for investors to use SRI vehicles in those categories where there are a variety of solid options and use traditional non-screened choices for areas without many SRI choices. This allows for a fully diversified portfolio which integrates both SRI and non-SRI options and can help allay any fear about the potential for an SRI approach to be too narrow and limit the universe of potential choices.
Another way for people to get started is to choose one part of their portfolio (e.g. large company U.S. stocks) and seek an SRI option that has a good track record in that space. If one is comfortable with how that is performing relative to its peers, then they can look for an SRI fund in another category such as corporate bonds. This incremental approach can be effective for people who want to move in this direction but don’t have the confidence to jump in with both feet.
One potential pitfall to be aware of is deciding to “try out SRI” by investing in an alternative/renewable energy fund. As I discussed in last month’s column, these funds can play an important part as a relatively small part of a broadly diversified portfolio, but they can be extremely volatile. If one judges the merits of SRI based on the performance of one of these vehicles, their results will depend heavily on the timing of when they bought the fund and they may or may not have a successful and pleasant experience.
The beauty and power of the idea of “progress, not perfection” is simply that it makes it much easier to get started with anything that may seem a bit daunting at first. This has been an important part of the message and approach of 12 step groups such as Alcoholics Anonymous since people can get started by attending a meeting and don’t need to feel that they need to address everything all at once. In a similar vein, we can’t instantly solve the world’s problems by changing our investing and consuming habits but we can have a huge impact over time by integrating more sustainable and responsible practices. As Voltaire famously wrote: “The perfect is the enemy of the good”. He went on to say that: “Perfection is attained by slow degrees; it requires the hand of time”. I hope you find these thoughts useful as we all continue to look for practical and effective ways to foster a more sustainable and just world.
Harry Moran helps socially conscious investors define and achieve their highest goals by aligning their money with their values. A 25-year veteran of the financial services profession, Mr. Moran has held the Certified Financial Planner® designation since 1991. He is a member of First Affirmative Financial Network, a national professional organization dedicated to meeting the needs of the socially conscious investing community, and a member of the Impact Investing Division of Portfolio Resources Advisor Group, a registered investment adviser. Mr. Moran can be reached directly at Sustainable Wealth Advisors at firstname.lastname@example.org or 518-450-1755.