David M. Smith, CFP®
The first step you might take in deciding whether or not to apply SRI to some or all of your investment selections is to decide how important is it to you to invest in companies that support your values and avoid those that don’t? If maximizing your gains for your investments is your primary goal and you are comfortable with a process that does not necessarily mirror your values, you will probably not be motivated or interested in SRI investing. But if you have strong opinions it may be important to you to avoid owning even a small amount of companies you think are destructive while seeking those that support what you think is good for people and the natural world. Climate change, fair employment practices and the social policies of corporations may not be on your radar. But if they are, what next?
You probably want to know whether you will earn more or less than you would with traditional investment selection. One answer is that it depends upon many variables. Second, traditional investment indices were created before SRI investing became common and are seldom a good match for SRI investments. That being said, there is ample evidence, in my opinion, that although SRI investment returns will vary from traditional benchmarks, they need not provide inferior returns. See: http://www.ussif.org/performancefor research on SRI performance.
So, if you’ve followed this blog so far, you may already be an SRI investor or someone who is interested in applying its principles. Before doing that, some definitions are helpful in determining which values you want to apply. Our next blog will be, “Do you want some ESG in your portfolio?”