In this episode, I discuss Sustainable, Responsible, Impact InvestingAIO Financial (fee only financial planners) specializes in Socially Responsible Investing (SRI). The following is an introduction to SRI.

Sustainable, Responsible, Impact Investing (SRI)Growth of Sustainable, Responsible, Impact InvestingSustainable, Responsible, Impact Investing (SRI), also known as sustainable, socially conscious, green, ESG (Environmental, Social, Governance), and ethical investing, continues to grow at a faster pace than conventional investment assets. The strategy idea is to invest in-line with your values. SRI provides a way to support organizations and issues that you are concerned about while earning a competitive return.

Over $17 trillion of U.S. investments (33%) are in SRI. These investments use at least one of the three SRI strategies:

  1. Screening
  2. Shareholder Advocacy
  3. Community Investments

Some of the main reasons why SRI is more attractive now than in the past, include:

  • There are more sustainable, responsible, impact investments available. There are currently more than 1,000 SRI funds.
  • SRI mutual fund performance has improved. Increased competition and size of these funds has allowed the administrative costs to be lower.
  • There are companies and industries people do or do not want to support and there is more information readily available than ever before.

There is no one strategy to move your portfolio closer to your values as there is no one reason that motivates people to participate in SRI.

Sustainable, Responsible, Impact Investing StrategiesScreening

Screening involves using positive and negative filters to select investments (avoid or include investments). Companies may be excluded or included based on their:

  • Industries – exclude all (like oil) or best of the worst (like BP) or focus on alternative energy
  • Country – avoid if regime has poor human rights record
  • Corporate SR – promoting women, impacts on community, environmental impacts, fair trade producs
  • Policies & Practices – Unions, Healthcare, recognize domestic partners

Shareholder Advocacy

Shareholder advocacy is exercising your right as a shareholder (through SRI mutual funds or individual stocks) to influence the direction of business. Index and non-SRI funds generally do not vote or vote with management on environmental, governance and social (ESG) issues. Shareholders can:

  • Voting of Proxies – All shareholders may vote on annual meeting agenda items
  • Letters – Letters may be sent any time (all public companies have Investor Relations Depts.)
  • Filing Resolutions – Shareholders may petition companies they own shares in (at least $2k), for annual meeting agendas. Resolutions often pass with less than 30% in favor
  • In-person meetings/dialogues – Letters and resolutions may lead to discussion of issues with company executives
  • Divest – sell your shares

Some of the top ESG shareholder issues are:

  • Political contribution
  • Climate change
  • Equal employment
  • Environmental management and reporting
  • Board diversity
  • Executive pay

Community Investments

Provide access to credit, equity, capital, and basic banking products that low-income communities who would otherwise lack.

Participation in community investment includes:

Investing in micro-credit organizations through notesInvest in community development loan funds

  • Using member owned credit unions or community banks for your banking service

Getting Started with Sustainable, Responsible, Impact InvestingHow to Construct an SRI Portfolio

Work with your financial advisor to determine your risk tolerance and investment objective. Depending on your situation you can develop an SRI portfolio by using:

  • Individual stocks
  • SRI mutual funds
  • SRI exchange traded funds (ETFs)
  • Community development loan fund
  • Managed accounts (from asset management firms)
  • Or a combination

A portfolio with SRIs can be created using:

  1. SRI Mutual Funds and/or SRI ETFs (Exchange Traded Funds)
  2. Individual Stock
  3. Asset Manager

Where to Invest
1. Charles Schwab, Vanguard, Fidelity
2. Directly with fund companies
3. With an SRI money manager

Asset Allocation
1. Consider the time frame for this investment money (the sooner you need money, the more conservative your portfolio should be)
2. Consider your risk tolerance (you do not want to be tempted to move out of stocks when they are low and start buying when they are high)
3. Develop an investment policy (target percentage in each asset class)

Investing
1. Evaluate options for each asset class of your investment policy

  1. In addition to performance, consider any transaction fees, minimums, and expenses.

  2. Evaluate the SRI aspect of each investment. Here is an SRI questionnaire – to help you think of some of the issues and your preferences with SRI. The big decision/trade off to consider is:

  3. Do you want just some basic screening (avoiding stocks with alcohol, tobacco, weapons)? In this case an SRI exchange traded fund may be the best option. The expense ration is very low and returns are very competitive. (Vanguard, iShares)

  4. Do you want more stringent screening (positive and negative), proxy voting and some corporate engagement? There are several mutual funds with competitive expenses and performances. (Parnassus, Portfolio 21, Neuberger Berman)

  5. Do you want a very active fund regarding ESG issues that files shareholder resolutions and has dedicated staff to work on these issues. (Calvert, Domini, Pax)

  6. Select the investments that meet your needs the best. We are working on an easy investment table that will make selection easier. I will post a link when it’s ready.

Maintenance
We recommend rebalancing to match your investment policy two times each year and, as much as possible, only adjusting your policy when there are changes in your life and time horizon for your investment money.

At AIO Financial, we use a program called YourStake to evaluate the impact of Mutal Funds and Exchange Traded Funds (ETFs). They put funds into three ESG advocacy categories: Minimum, Base, and Deep. In general, there is an increased expense for more advocacy.

Using YourStake, we are able to identify funds that do not have fossil fuel companies and see ratings for various other ESG issues. This allows us to identify funds that will be appropriate for an investor. The table below is an example of some of the types of funds that are available.

Example Mutual Fund/ETF Options

| ESG Advocacy | Name | Ticker | Expense Ratio | Overall ESG Alignment | Fossil Fuel Free | Environmental Rating | | Min | Vanguard ESG US Stock | ESGV | 0.12% | 8 | No | 7 | | Min | Goldman Sachs International Eq ESG | GSIFX | 1.18% | 7 | No | 8 | | Min | Vanguard Global ESG Select Stock | VEIGX | 0.55% | 8 | No | 8 | | Min | Fidelity Sustainability Bond Index | FNDSX | 0.10% | 5 | No | 5 | | Base | Neuberer Berman Sustainable Equity | NBSRX | 0.87% | 8 | No | 8 | | Base | Nuveen ESG Mid Cap Growth | NUMG | 0.40% | 8 | Yes | 7 | | Base | Xtrackers MSCI ACWI ex USA ESG Equity | ACSG | 0.16% | 7 | No | 7 | | Base | iShares ESG Aware 1-5 yr USD Corp Bond | SUSB | 0.12% | 7 | No | 6 | | Deep | Parnasus Core Equity Fund | PRILX | 0.62% | 8 | Yes | 9 | | Deep | Nuveen ESG Small Cap | NUSC | 0.40% | 7 | No | 7 | | Deep | Pax International Sustainable Economy | PXNIX | 0.48% | 7 | No | 8 | | Deep | Trillium ESG Global Equity | PORIX | 1.03% | 8 | Yes | 9 | | Deep | Calvert Bond Fund | CBDIX | 0.53% | 6 | No | 8 |

  • on a scale from 1-10, 10 being the best

Next StepsThere is much more information in our ebook – Socially Responsible Investing made easy.

Here are some other resources:

USSIF (USSIF.org) – The Forum for Sustainable and Responsible Investment is the US membership association for professionals, firms, institutions and organizations engaged in sustainable, responsible, and impact investing. US SIF and its members advance investment practices that consider environmental, social and corporate governance criteria to generate long-term competitive financial returns and positive societal impact.

Your Stake (yourstake.org) – YourStake is an impact investment evaluator. YourStake allows advisors to evaluate the impact of portfolios and compare them. They also provide a petition platform to help make an impact.

First Affirmative: AffirmativESG (firstaffirmative.com) – First Affirmative is a network of fee only financial advisors who specialize in SRI. They provide the AffirmativESG platform to their advisors that offers customized accounts.

Green America (GreenAmerica.com) – Green America economic action to solve social and environmental problems. Their mission is to harness economic power—the strength of consumers, investors, businesses, and the marketplace—to create a socially just and environmentally sustainable society. They provide a green directory.

NAPFA (NAPFA.org) – The National Association of Personal Financial Advisors – is a professional association for Fee-Only financial advisors—highly trained professionals who are committed to working in the best interests of those they serve. You can search for fee-only advisors throughout the US.

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