Daily Management Review

Can socially responsible investing be profitable?


12/14/2016


Increasingly more investors begin to care not only about their own profit, but also about benefits to society. They are willing to invest and subsequently maintaining concepts they consider valuable, such as protecting the environment, or combating problems of society and government.



nosha via flickr
nosha via flickr
Movement of socially responsible investors is often called SRI (socially responsible investing). There are many ways to enter this sphere: you can avoid investments in "harmful" (for example, tobacco) companies, or look for businesses that support some particular industries - for example, development of renewable energy sources. If an investor finds it impossible to investigate in detail business of the company in which he wants to invest, he can use a special index fund.

For example, Vanguard FTSE Social Index Fund consists of 407 shares, which, according to the fund’s management, have been selected "for certain social, human rights and environmental criteria." However, all interested are immediately warned that the fund’s rate of return may differ from yield of the stock market as a whole. 

Does socially responsible investing mean missed potential earnings?

Indices of this trend showed different results with respect to the market. Some individual companies, however, have brought very good yield while remaining true to the stated values. Although composition of these funds’ portfolios vary, some stocks are found in many of them. For example, it is Microsoft, which this year has been ranked second in a list of the most socially responsible companies, compiled by Reputation Institute.
 
Another example is Johnson Controls International. The company is a member of more than 40 indexes of this trend, and informs that they managed to reduce greenhouse gas emissions by 41% from 2002 to 2014.

In addition, we should probably mention Facebook and UnitedHealth Group. The companies respect a number of obligations to workers and residents of surrounding areas (and both outperformed the market this year).

In the future, prevalence of a responsible approach to investment and its impact on the market will only grow. A study conducted by U. S. Trust (division of Bank of America specializing in capital management) indicates that number of young investors who invest in socially responsible companies increased by 40% from 2014 to 2016. Upturn among investors with a capital of US $ 10 million is even more impressive – their number has grown by 93%, and the total share reached 27%. 

Of course, identification of such companies is an additional job, much more difficult compared with preparation of convenient rating of businesses. For example, Volkswagen was included in portfolios of these funds, but the recent scandal with exhaust of its diesel models has brought down the company's reputation and stripped the bark off its shares’ value. Nevertheless, companies, that combine a socially responsible approach and rapid growth stocks, are more widespread than it may seem at first glance.

source: fool.com






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