History demonstrates socially responsible investing (SRI) has been present since the 1800’s. It began with adversity to companies that manufactured tobacco and alcohol or promoted gambling in an era  known as the Age of Reason.  

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In 1971, the first socially responsible investing fund was launched by Pax World, a sustainable investment firm, and in 1999 the Dow Jones sustainability indices were established.  

Today, mindful investing is at the forefront with investors more interest than ever in which companies are supported in their investment portfolios. According to the Global Sustainable Investment Alliance, global sustainable assets grew to $35.3 trillion in 2020 and are projected to reach $160 trillion by 2036.

Many names have been given to the movement including socially responsible investing (SRI) and impact investing and environmental social governance (ESG). With the increase in awareness comes increased concern in balancing global value with the need to obtain positive financial results. This has prompted a transition in investment decisions through ESG integration which aids in the assessment of risks and opportunities in businesses and portfolios.  

Socially responsible investing considers these elements:

Environmental. What is the impact of a company’s product or service on our earth? Climate change, waste management, pollution and resource depletion are taken into consideration.

Social. What effect does the business have on its community – individually or globally? Factors considered include human rights, health and safety, corporate culture, diversity and inclusion.

Governance. What are a company’s internal systems and processes? This encompasses executive pay, corporate reporting, risk management, corruption and more.

Where do we start if we want to be a mindful investor? ESG integration analyzes factors in the investment selection process and the potential effect on performance returns. Investment banking firm Federated Hermes recommends reframing the ESG process through four steps:  integration, screening, thematic and impact. 

First, risk can be mitigated by incorporating ESG factors in the investment process. Next, values are reflected by including or excluding industries based on the investor’s specific beliefs. Aligning with and focusing on the major ESG trends and sustainability topics will open the door for change. Finally, by requiring quantifiable environmental and social gains, measurable change is imminent.

The world is constantly changing; consumers preferences evolve, and companies’ business models will continue to follow. Investment choices should not be a political agenda, but a merging of one’s heart and mind to produce, not only acceptable financial returns, but a sustainable future for the world.

Speak with your financial advisor today to establish an ESG focused strategy for your portfolio.

Michele Sarna is a certified financial planner™ with Beacon Pointe Advisors and can be reached at (760) 932.0930 or msarna@beaconpointe.com.

Sources: 1) https://www.investopedia.com/news/history-impact-investing; 2) https://www.history.com/topics/british-history/enlightenment; 3) http://www.gsi-alliance.org/trends-report-2020

Provided as information only and should not be considered investment, tax, or legal advice or a recommendation to buy or sell any type of investments. Asset Allocation, portfolio diversification, and risk strategies cannot assure or guarantee better performance and cannot eliminate the risk of investment losses. Form ADV contains important information about Beacon Pointe Advisors, LLC, and may be viewed at: adviserinfo.sec.gov.

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