Mark Brandon is the Managing Partner of First Sustainable (http://www.firstsustainable.com), a registered investment advisory catering to socially responsible investors. In addition to Socially Responsible Investing (SRI), he may opine on social venturing, microfinance, community investing, clean technology commercialization, sustainability public policy, green products, and, on occasion, University of Texas Longhorn sports.

Monday, February 20, 2006

Ten Tips for No-Nonsense Socially Responsible Investing, Part 1

Jonathan Clements' column in the Wall Street Journal Sunday, "Twenty Tips for No-Nonsense Investing" is indispensable for those who seek to cut through the marketing hooey of the financial services industry and really understand what is essential for investing. Since I am not into plagiarism, I will only provide a hyperlink. However, in honor of the fine piece, I want to add a corollary for socially responsible investors.

  1. Being socially responsible means more than calling yourself socially responsible. Over and over again, I have said that my biggest challenge is to demonstrate to people that the definition of socially responsible is different to everybody. For some funds, SR means screening alcohol, tobacco, and gambling. For others, it means seeking out alternative energy technologies. For still others, it means devoting 1 percent to community investments.
  2. Being socially responsible should not automatically entitle your mutual fund or adviser to a drastically higher fee. Many SRI mutual funds insist that the higher fees are the result of their size. Hogwash! They are trying to capture the LOHAS demographic that is willing to pay higher prices for sustainable products. There are many cost competitive alternatives, including the ones offered by First Sustainable.
  3. Investing Responsibly does NOT mean you will sacrifice performance. The best academic studies show that SRI and non-SRI strategies perform about equally. In some years, non-SRI strategies do better. In no case does one strategy consistently or significantly outperform.
  4. Screening out the bad actors is not the only SRI strategy. After weeding out any company that has even a somewhat objectionable product or stance, one must wonder if there will be anything left. The answer depends, of course, on how strict your social criteria is. However, you can also choose to pick the most ethically inclined companies in each industry. You can choose companies that show a steady improvement in their ethical behavior.
  5. One should agitate for responsible choices in your 401(k). Almost every 401(k) platform makes it extremely easy to add funds if the employees demonstrate that they want them. So, if your company offers no SRI alternative, speak up! With half of investable assets in these qualified plans, it makes a huge difference.
Go to Part 2

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