Socially Responsible Investing

Socially responsible investing, ESG (Environmental, Social, Corporate Governance), Impact Investing...many titles exist, all united by their vision. They refer to investments made into companies, organizations, and funds with the intention to generate a measurable social or environmental impact alongside a financial return. Investing in ESG funds doubled in size to $51.1 billion in 2020 alone.1

What could be better than earning money and making positive change? It sounds like a win-win opportunity. However, before you dump all your money into a rainbows and butterflies fund, understand the goals, tactics, and risks of this emerging investment category.

The Double Dividend

This is the goal of socially responsible investing. Stock your portfolio with impactful investments that maximize earning potential.

Keep in mind socially responsible investing is not charity! Do not be lured in by a heartwarming cause and accept inferior returns. The priority of your investments are to earn. It is not incongruent to gain market return and benefit society.

There is no standardized rating system for impact funds. Here’s why

The ESG initiative began in 2004 when the UN secretary realized embedding environmental, social and governance factors in capital markets makes good business sense and leads to more sustainable markets and better outcomes for societies.  As expected with an emerging integration the system is not yet perfected.  Rating agents often disagree on how to measure and rank social impact. Company disclosures on ESG practices have always been voluntary, are rarely audited, and are not standardized. 

How would you rank an oil company that pledges to become carbon neutral by 2030? Are they socially responsible now, or in 10 years?

Although agencies are working with merely a decade of data and take liberties in ranking decisions,  they do provide some transparencies to help investors make insightful decisions . Two of the more prominent rating agencies are research firms Sustainalytics and MSCI

Be aware of investment risk.

Some socially impactful investments are high risk. These risks increase if dependent on advances in emerging technology.

Example: The solar company Solyndra notorious for its massive bankruptcy was originally touted as, “The Next Big Thing” and, “Top Clean-Tech Company” by the Wall Street Journal and received over a half billion-dollar loan from the US Government. Politics aside, the solar giant's illusion of success highlights how companies can play on 'do good, feel good' emotions for capitol gain. 

Do your research, look for consistent returns, and don’t succumb to delusions of grandeur.

Finding the right investment opportunity can be difficult. Use the following 7 tips to achieve true double-dividends.

  • Investments with massive companies such as renewable energy should be left for those with private equity
  • Speak with impartial financial advisors before making big decisions
  • Companies may use their claims of social responsibility as a sales tactic.
  • Understand the business model. Does the corporation use ESG criteria to frame their strategy? Keeping ESG in mind how does this affect operational decisions, risk management?
  • The top priority is maintaining and increasing wealth. 
  • Keep a staggered portfolio to hedge against risk
  • Private equity hedge funds are more appropriately suited for people who want to make smaller bets

Learn how Mobility Trust can fulfil the ESG portion of your portfolio Tap the Image.

Get Started

[1]  Morningstar "Sustainable Funds US Landscape Report" 2020

(Disclaimer: The use of this website does not constitute the rendering of financial advice by the author to the reader. It is solely for informational purposes. The author is not a financial advisor and has no affiliation with links provided in the article. Please visit the privacy policy for a full list of disclosures. ) 

Related Posts

Keep in Touch

Subscribe to our email list for the latest in industry events, press releases and company updates.