Sustainable, socially conscious investing is on the rise: Here’s what you need to know

Sustainable, socially conscious investing is on the rise: Here’s what you need to know

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Filed on 13. Jun, 2017 in Business Toolkit, Contributors

By Mark Wallace
For the Bellingham Business Journal

Many of the toughest decisions that must be made to improve a community’s vitality involve compromise. But fortunately, a vital community can include both thriving business and a healthy environment. Walt Whitman once said, “Other lands have their vitality in a few, a class, but we have it in the bulk of our people.”

I believe this applies to Whatcom County.We have a vocal community, supporting a wide range of social, economic and environmental issues. Bellingham might be the city of subdued excitement, but once we have our coffee, we become a lot more lively.

We can have impact in two ways.One, with our actions and good examples — community leadership with respect and our quiet, every day choices. Two, we can have an impact with our money, which is the focus of this article.

Money is a tool that can be used to weigh choices and vote with our wallets, all within the context of our social, economic and environmental goals.

This includes choices around what we buy, the businesses and institutions we support, the nonprofits we give to and also consideration of the societal and environmental impact of our money habits.

These decisions can impact the vitality of our community.

Sustainable investing is thriving

As a financial advisor in Whatcom County, I am seeing more interest in how investment portfolios can sustain a healthy environment and support social values. This type of investing is often called socially responsible investing or sustainable investing. Traditionally, it involved screening out the “bad” companies such as those that sell alcohol, tobacco and firearms.

Now, sustainable investing has evolved into a process where instead of just screening out investments, you also search for the companies that meet your positive criteria. This is known as ESG, standing for investing in companies that are vital to your environmental, social and corporate governance principles.

These themes are relevant to Whatcom County where we live in natural beauty, have local healthy food options, where we support local businesses and have a strong voices in support of equality. Sustainable investing is gaining popularity and there are more investment choices available across a broad range of selection criteria.

These include investments that focus on:

  • Impact Investing, seeking investment opportunities that can produce social or environmental benefits.
  • Thematic Investing, investing along themes such as alternative energy, religious values, fossil fuel divestment and others.
  • ESG Investing, selecting for companies that exhibit leadership in environmental policies, corporate culture, minority participation and in other areas, whether on an absolute basis, or relative to their peers.

There is now $8.7 trillion invested in this field in the United States, according to an annual report by US SIF, a national organization that advocates for environmentally and socially conscious investing. That’s an increase of 33 percent since the 2014 report.

What to consider

Sustainable fund performance remains a question mark.

Recent studies by Morningstar, an investing research and analysis firm, have suggested that selecting investments using sustainable screening criteria can generate outperformance, but many sustainable investment funds also come with higher expenses.

Here at Skyline Advisors, we believe that investors should consider performance, expenses, risk as well as the sustainable strategies we want to support, before making an investment.

Sustainable investing comes with caveats. It often excludes many energy and industrial related companies, and includes a lot of technology and healthcare, losing some diversification and potentially increasing risk.

Another challenge is the differing beliefs of individual investors. For example, many consider Starbucks to be socially responsible. They focus on green supply chain management, purchase fair trade certified organic coffee and use sustainable materials in their stores. But many investment funds exclude Starbucks, because they also sell alcohol and they compete with local coffee shops.

You decide.

Perhaps the biggest misconception investors have is they think that when they buy shares of stock in their ideal sustainable company, they are directly supporting that company’s sustainability efforts.

That is rarely the case. When you buy stock on a stock exchange, you are buying from another person just like you who was willing to sell their shares at the price you offered. In other words, you are almost always buying stock from another individual, not from the company itself.

However, sustainable companies do reap the reward of higher stock prices. More buying means higher stock prices, which allows companies to issue new stock at that higher price, raising capital to reinvest back into their sustainable business practices.

Have an impact

A vital community requires thriving business, living wage jobs and promotes good stewardship of our resources. Our money has an impact and an increasing number of investors integrate sustainable practices into their investment portfolios as part of their financial impact strategy.

Skyline Advisors wants to support these efforts.

Mark Wallace, CFP, AIF, CRPC, is a financial advisor at Skyline Advisors, a locally owned and operated registered investment advisor providing money management and financial planning services. Skyline Advisors is located at 405 32nd St., Ste 201 in Bellingham and at www.myskylineadvisor.com. Mark can be reached at 360-671-1621 or at markw@myskylineadvisor.com

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IFRoZSBKb3VybmFsPC9saT48L3VsPg==