“Socially Responsible Investing (SRI) has for decades remained on the fringe of strategic money management, routinely battling the perception that prioritizing an ethical or social focus requires sacrificing significant returns. The recent freefall of markets and business morality, however, has triggered a greater awareness of correlations between company performance, integrity, and transparency–an interdependence that highlights the nature and high potential of an evolved form of SRI.”
Those are the opening lines of a new white paper, “Best Practice in Portfolio Management: Socially Responsible Investing Comes of Age,” from Chat Reynders and Pat McVeigh of Reynders McVeigh Capital Management in Boston. The authors believe that the SRI movement “is on the cusp of its next iteration” and cite a number of research studies and other sources including a Wall Street Journal article that noted “more workers are trying to align their personal values and their retirement savings by opting for socially responsible investments in their 401(k) plans…many younger workers and mainstream investors are demanding them as options in their retirement accounts–especially so-called green funds.” (Download a copy of the white paper here.)
As that Journal article (“Principled Investing Gains More Fans,” Jilian Mincer, Wall Street Journal, May 13, 2009) noted, green topics have never before been as big a part of the American conversation. “It’s a terminology shift and there’s a lot of pop culture buzz around green right now,” observes Steve Schueth, president of First Affirmative Financial Network in Colorado Springs, Colorado.
Schueth is a veteran of more than three decades in financial services and has been with First Affirmative since 1989. His firm manages money for socially conscious investors through a network of about 120 advisors in 29 states, and also owns and produces the annual SRI in the Rockies Conference. We spoke in mid-October as Schueth was getting ready for this year’s 20th anniversary conference scheduled to be held in Tucson, October 25-28.
From SRI to ESG
“If you think about it from a historical perspective, green has always been part of the SRI approach,” says Schueth. “When I say ‘green’ in this context, I mean environment and energy. And for that matter, most of the people who are using green as part of their marketing slogans are really focusing on environment and energy. I think that green is becoming a common buzzword and a common galvanizing factor attracting people to the business. Once they’re in the door, once they’re getting what they need and what they want in terms of environment and energy-related stuff, then we can begin to help them understand that there’s more to it than just the environmental factors. What’s really interesting is that as those conversations ensue, virtually everybody that’s attracted green and that embraces the green terminology, quickly ‘gets’ the broader conversation. To some degree they start as light green and they become dark green.”
As a participant in the SRI movement for the last 20 years, Schueth has witnessed and participated in the evolution of this investment approach and can offer a first-hand view of where it might be heading. He says if you look at the growth of this type of investing “it has been substantial and the SRI space has been gaining market share,” he says.
One development that has helped fuel this growth has been a shift in both terminology and the underlying philosophy used by SRI practitioners. “If you look back to the beginnings of this thing, academically you can probably go back 2,000 years to Jewish law, but if you look at it in the U.S., I trace it back to the Methodist and Quaker immigrants, who when they first came here refused to invest in slavery or tobacco or war-related industries,” says Schueth in giving a brief history lesson.
By 1990, many investors, says Schueth, “were still avoiding the most egregious polluters, but we also began to look for those companies that were better than their competitors in terms of managing their environmental impact.” It was around that time, he says, that “the winds shifted pretty dramatically. Since then, the emphasis has been on positive, or let’s call it qualitative, criteria. The avoidance stuff is still there for many clients, but literally it takes five minutes.”
The U.N Effect