What’s the Buzz about Socially Responsible Investing?

by Drew Snider, CFP®

Director, Financial Planning, Coastal Credit Union, Financial Advisor, CUSO Financial Services, L.P.

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What’s the Buzz about Socially Responsible Investing?

In recent years, Socially Responsible Investing (SRI) has really picked up in the form of media coverage, number of investors interested, and investment firms offering new portfolios for us to use. Many people point to climate change, social awareness, and a new crop of young investors as the catalyst for the recent growth in SRI. Let’s dive into SRI and how you can get started investing the socially responsible way.

Aligning with Your Values

Socially Responsible Investing is a broad term for several investing strategies that align your investments with your values. In the United States, the roots of SRI can be traced back to the 18th century when religious groups forbid followers to invest in companies whose products didn’t align with their values. This could include investments in alcohol, gambling and tobacco, among others. Modern SRI strategies emerged in the 1970’s and focused on excluding companies that profited from the Vietnam War or to protest South African apartheid. Today, the practice of removing a single stock or industry from portfolios is known as exclusionary screening and has been used predominantly to exclude stocks that are harmful to the environment. The strategy has grown in popularity over the past decade and in a 2020 report by The Forum for Sustainable and Responsible Investment, SRI grew by 42% from 2018 to 2020 now and represents 33% of all assets under management in the United States.

Money or Values?...Why Not Both?

For many years, SRI strategies were misrepresented as lower performing. Recent studies have shown that SRI portfolios not only have similar returns but also may have lower volatility. This change in performance could be attributed to the fact that the internal expenses of SRI portfolios (the cost to manage them) has come down in recent years due to the growing number of mutual funds and exchange traded funds (ETFs) available.

Which Strategy is Right for You?


Image explained below.

There are several paths to Socially Responsible Investing. Here’s a review of the most common you will encounter.

Socially Responsible Investing typically is a values based approach that excludes industries that don’t align with your values. 

ESG (Environmental, Social and Governance) strategies (also called Sustainable Investing) refers to a more modern approach that includes industries that do align with your values. The idea behind ESG investing is that environmental, social and governance factors are important in determining the future risk and return of an investment.

Advocacy Investing (or Impact Investing) is a term that refers to investments focused on a targeted goal. Examples include financing loans to low-income homebuyers, funding projects to reduce air pollution at factories, buying stock in a company in an effort to put positive shareholder initiatives on proxy ballots, etc.

How to Get Started in SRI

To get started with Socially Responsible Investing you will need to start with research. Several organizations provide sustainability analytics for stocks, mutual funds and ETFs. Morningstar and The Forum for Sustainable and Responsible Investing are two examples. Consider what factors are important to you and decide if you want to research individual companies or use a mutual fund or exchange traded fund (ETF) that relies on a portfolio manager to do the research for you. Currently, there are no regulations established by the Securities and Exchange Commission to define if a mutual fund or ETF is “Socially Responsible”. As a result, the funds will have varying degrees of scrutiny on the companies they buy. As an investor, you need to understand the fund’s approach and be sure it matches your investing goals and values.

Due to the growing interest in SRI, each year investment companies are introducing additional mutual funds and ETFs for you to invest in. With the greater availability of funds, you can now create a diversified portfolio of SRI mutual funds and ETFs that includes bonds, different size companies, and stocks from the Unites States and international markets. However, because they are new funds, many do not have long track records and you may need to do some extra research to assess the quality of the fund’s management. Mutual funds will typically have more active trading within them as the management team seeks companies that they hope will out-perform in the future. ETFs will more often follow an index and not engage in regular trading.  As the index changes, the management team will adjust the portfolio. 

There are several options to opening a SRI account. In fact, you may find that your existing 401(k) plan has SRI options available. If you are investing outside your company’s retirement plan, you first need to decide what type of account you need to open. If the investment is for retirement, you might open a Traditional IRA or Roth IRA. If not specifically for retirement, you would open a brokerage account with the company that offers the SRI choices you have researched and want to invest in. 

Ready to Start Socially Responsible Investing? Let’s Talk.

There are many considerations when choosing a Socially Responsible Investment strategy. As a Coastal member, you can connect with one of our CFS* Financial Advisors to schedule your free review. Working with a Coastal financial advisor can help you choose the right type of account to use and design a socially responsible portfolio that fits your values and goals.  

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*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. ("CFS"), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Coastal Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

Trust services available through MEMBERS Trust Company. CFS and Coastal Credit Union are not affiliated with Members Trust Company.