Socially responsible investing is maturing, growing in assets, and moving into new territory. Find out where investing based on values is heading next.
Some investors these days want to align investments with beliefs. Whether you care about clean energy, diversity and equality in corporate leadership, the welfare of animals, the environment, or some other niche cause, you can likely find a fund to mirror these socially conscious goals.
Since 2008, net assets in socially conscious funds have more than doubled. From a low at nearly $90 billion in 2008, assets in such funds have grown to $167 billion-plus in 2016, according to Morningstar data. Investors also have significantly more choices today than they did just a few years ago in this category of funds. From 2005, the number of socially conscious funds grew from 136 to 210 this year, Morningstar data shows.
It's not just that the dollar amount invested is growing; socially responsible investing (SRI) has morphed into a more positive approach within the sustainable investing world. The new, larger, all-encompassing buzzword is ESG investing, which stands for environment, social, and governance (more on that in a moment).
Here's what's changed: the original SRI funds focused on exclusion. Think so-called "sin stocks," which can include tobacco, alcohol, gambling, or even industrial companies that were big polluters. The original SRI funds would screen out these companies.
Today's ESG funds focus on more inclusive, holistic, and positive investing approaches. "Instead of just screening out bad stuff, these funds own things that have positive characteristics. They strive to include companies that have the most sustainable business models, or companies that proactively do positive things for the environment," explains David Kathman, senior fund analyst at Morningstar.
MSCI and a number of other firms have created benchmark indexes to reflect each of these investing goals. Kathman explains the goals of each segment:
MSCI has developed a number of indexes that track key components of ESG investing, including the MSCI Global Sustainability Indexes, MSCI Global Environmental Indexes, and the MSCI ACWI Sustainable Impact Index.
Index companies are catering to the demands of niche investors and creating indexes that focus on narrow investing goals. One example is the SSGA Gender Diversity Index, which includes listed U.S. large-cap companies with the highest levels within their sectors of gender diversity on their boards of directors and in their senior leadership.
It looks like socially responsible investing is not only here to stay, but is growing. "People want to invest in companies that are not just avoiding bad stuff, but doing positive things for the environment and society, and shareholders," Kathman says.
And here’s even better news for socially conscious investors: it may not mean giving up returns. "I often get the question, aren't you giving up returns by doing this type of screening? The answer is not really. These types of funds include companies that are doing good things, and it’s less about keeping things out. It’s using ESG as part of the investment process," Kathman concludes.
Check out Dan Rosenberg’s recent article about socially responsible investing to learn more about how to get started.
Find funds with the TD Ameritrade Mutual Fund Screener. Log into the website, click the Research & Ideas tab, click Mutual Funds, then click Create a Screen.
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