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Upheaval in society has people turning to socially responsible investing

Jennifer Marks, head of the Long Island office

Jennifer Marks, head of the Long Island office of J.P. Morgan Private Bank, in Lake Success. Credit: J.P. Morgan Private Bank

There’s a mood of higher consciousness in the air. The pandemic and racial justice awakening has people thinking and rethinking many areas of their lives, including their money and whether their investments should align with their values. Increasingly, some are saying yes.

They are turning to socially responsible investing. A socially responsible investor puts their money in companies that align with their personal philosophies. The notion is not new but growing the last several years and gaining momentum from recent events.

SRI is not a one-size-fits-all approach, everyone has different values. "Someone who cares about the environment might invest in a renewable energy company because they view that investment as making a positive impact on society. Similarly, they may opt out of investing in the fossil fuels industry," says Joshua Zimmelman, president of Westwood Tax & Consulting in Rockville Centre.

He says SRI as an investment strategy has the goal of creating financial returns for the investor while also promoting ethical companies that make a positive societal impact. ESG stands for environmental, social and governance. A company is viewed through those lenses. For example, the environment can include carbon emissions and climate change. Social can consider a company’s policies around employee diversity and safe work conditions and governance issues like board independence and executive compensation, explains Brendan Erne, director of portfolio management at Personal Capital in San Francisco.

The concept is top-of-mind for investors. Research firm Morningstar reports that in the first quarter of 2020 investors poured a record $10.5 billion into sustainable funds, nearly half of the total amount invested in 2019. A recent study of 1,000 people by Personal Capital found that since March, more than 1 in 4 people polled sold stocks due to a company’s behavior. Sixty-four percent said they practice SRI, especially millennials who made up 68% of those doing so. Fifty-two percent said they would invest in companies they agree with on social issues, even if they made less money.

"Ultimately, investors want to feel good about the impact they’re making on the world," says John Caserta, managing director of Caserta & de Jongh in North Haven, Connecticut.

Is SRI for you?

First decide which issues are most important to you. Then find the right SRI fund to match your values. Some funds screen the companies included in their stocks for certain criteria, but not others, so do your research to determine which ones are right for you.

"Be aware that some SRI funds have higher fees than traditional investment funds but not all, so ask a financial planner to help you decide which SRI fund is your best option," says Zimmelman.

The big debate about SRI is whether they underperform traditional investments? "In terms of performance, we caution our clients that restricting the list of potential investments may result in lower portfolio returns," says Asher Rogovy, chief investment officer at Magnifina in Manhattan.

However, says Jennifer Marks, head of the Long Island office of J.P. Morgan Private Bank in Lake Success: "Companies that embrace ESG within their values and mission have proven they can enhance returns in down markets. Research shows that ESG companies outperform broad equities in down markets due to less volatile experiences."

Maybe you start slowly, by investing a certain percentage of your portfolio in socially responsible investments and test the waters before committing 100%. But like with any investment, says Emmanuel Zisis, vice president of ClearscopeWealth in Old Brookville, "you need to carefully review a fund’s prospectus and investment objectives, while also taking historical returns into consideration to be sure that the investment fits their goals."

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