Independent Thinking^®

Mission Possible: Socially Responsible Investing

Most institutional investors and increasing numbers of individuals, notably women and Millennials generally, ask us about socially responsible investing, or SRI. Their interests are as varied as the investors themselves.

Environmental impact is a major concern, as are investments that relate to labor conditions and animal welfare, while questions about gender equality and local community engagement are on the rise.
 
Historically, investors – and their advisors – were turned off SRI by the relatively poor returns. The approach, which was founded in the abolitionist movement and garnered widespread public awareness in the drive to divest from apartheid-era South Africa, narrowed the investment horizon by screening out companies engaged in slavery, discrimination and, later, fossil fuels, weapons, tobacco or genetically modified foods.
 
Today, investors are wielding both carrots and sticks in attempting to drive change. SRI is increasingly paired with more proactive environmental, social and governance investing, or ESG, to encourage companies perceived as good corporate citizens. Whether they promote environmental stewardship, diversity or even high levels of human capital engagement (as opposed to the robots described on page 18 by Martin Ford), chances are that the $21.4 trillion global SRI/ESG market (up from $13.3 trillion in just four years) is rewarding them for doing so.¹ In the United States alone, $6.6 trillion, or more than one out of every six dollars under professional management, is invested in SRI strategies.²
 
This shift to what looks like a virtuous circle of good seems to be reflected in improved returns. The MSCI KLD 400 index of socially responsible companies outperformed the more traditional MSCI USA index in each of the past three years, averaging 11.8% in annualized returns against the 11.2% return of its benchmark.
 
For us, SRI/ESG investing starts with a conversation. When we know each investor’s goals – whether individuals, families, endowments or foundations – we construct an allocation and determine the strategy, often in partnership with specialist research firms, adjusted for risk and the most cost-effective manner possible. We then invest accordingly, in companies that fit the mission and, importantly, have attractive fundamentals, as described by Tim Evnin on page 5. We can arrange to vote the proxies of the underlying assets in a manner consistent with each investor’s goals and participate in resolutions. And we keep track, accessing and scoring investment data to continually inform and support the investor’s intentions.
 
For an increasing number of investors, SRI assets can be a rewarding component of their portfolios and a complement or even an alternative to their philanthropy. We will discuss our approach to deploying assets earmarked for impact-investing goals and engaging other family members in future editions of Independent Thinking. In the interim, please contact your wealth advisor to discuss whether socially responsible investing is right for you.
 
Iain Silverthorne is a Partner and a Wealth & Fiduciary Advisor at Evercore Wealth Management. He can be contacted at [email protected].

¹Global Sustainable Investment Alliance (GSIA) 2014 Review.
²US SIF Foundation’s 2014 Report on Sustainable and Responsible Investing Trends in the United States.