For many investors, saving for the future isn’t enough, they want their investments to only go toward environmental and socially conscious entities or businesses that align with their core beliefs and values.Multiple area banks and wealth management firms have responded to this trend in an effort to make it easier for people to manage their […]
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For many investors, saving for the future isn’t enough, they want their investments to only go toward environmental and socially conscious entities or businesses that align with their core beliefs and values.
Multiple area banks and wealth management firms have responded to this trend in an effort to make it easier for people to manage their wealth in a values-based, socially responsible way.
Berkshire Hills Bancorp Inc., the Boston-based parent company of Berkshire Bank, for example, for the past year has offered customers a suite of investments, or socially responsible investment portfolios, aimed at helping customers “align their investments with positive environmental and social outcomes.”
According to the bank, which has over 20 branches in Connecticut, the portfolios include companies with solid track records in these areas. Berkshire built the portfolio based on factors such as carbon emissions, air and water pollution, waste management, diversity standards, human rights, workplace safety, transparency and accounting standards.
Kathryn Hersey, Berkshire’s senior vice president, director of wealth management and chief investment officer, said there has been “significant growth” in socially responsible investing in recent years.
The US SIF Foundation’s 2020 biennial “Report on U.S. Sustainable and Impact Investing Trends,” revealed that sustainable investing assets now account for $17.1 trillion, or one in three dollars, of the total U.S. assets under professional management. This represents a 42 percent increase over 2018. A new report is due to be released in mid-December.
The foundation indicated in November that flows into sustainable funds have continued to be positive this year. It defines sustainable investing as considering environmental, social and corporate governance (ESG) criteria.
According to Hersey, since Berkshire launched the portfolio, it has been well-received.
“It is going very well,” Hersey said. “We’ve seen a number of nonprofits seek to align their mission with their investments, and individual clients are also interested in environmental, social and governance factors. We’ve seen nice growth and development.”
ESG ratings
David Sacco, practitioner in residence in the finance department at the University of New Haven’s Pompea College of Business, said this type of investing is growing.
“It’s more than a trend — it’s becoming a pretty significant metric that people are looking at in the professional money management world,” Sacco said. “Investors care about it. Money managers are using it as a marketing tool to get people to invest more money with them.”
The college is having students learn about ESG investing and rating systems, knowing that it will be crucial for their careers in finance, he noted.
“We know that our students who graduate the business school are going to be dealing with this in a big way over the next few years,” Sacco said. “We think this is going to be a hugely important aspect of any business education.”
The goal of values-based or socially conscious investing, according to Sacco, is to make investment decisions incorporating factors such as ESG ratings that people care about, while also ensuring that investors get the best returns.
“Everybody wants to do things that are socially responsible,” Sacco said. “The debate right now is — how do you do that and still maximize investment returns? I suspect that we’ll have that debate for the next five, 10, 15, 20 years, and we’ll sort of refine the process over time and then, we’ll see how effective it is.”
Meanwhile, companies are spending time and money to make sure they are adhering to ESG principles, notes Sacco.
“It is a little bit easier to measure environmental impact,” Sacco said. “When we talk about social issues, those become harder to quantify. Yet, people want companies to be managing themselves this way, and they want investment funds, at least those that they want to invest in, to be investing this way.”
A key question is how to accurately measure or score a company on all these factors, according to Sacco.
While it might be easier to measure a company’s carbon footprint, factors such as its diversity efforts and community impact are more ambiguous and difficult to measure, he noted.
Broad appeal
John-Oliver Beirne, partner and president at the Shelton-based Beirne Wealth Consulting Services, said investing based on one’s values has broad appeal for everyone, regardless of gender.
“When you start to talk about values, everyone starts to think, ‘Hey I have these things that I believe in,’ and I think it creates some more engagement,” Beirne said. “I think people become more interested and more excited.”
Exactly what is important to clients varies, he said.
For some, it may be the environment, while others may be more focused on diversity, equity and inclusion.
For example, one investor might feel strongly about investing in a company that is actively recruiting more women. Another might wish to avoid investing in a business that makes weapons or ammunition.
“The environment comes up more,” Beirne said. “How we think about it is — how are we aligning ourselves with companies that we believe are doing good for the world, beyond just doing well financially? A big part of that is having a diverse work culture and an idea around inclusion.”
The firm works with clients to learn exactly what they value and think is important in investing, and then aligns their portfolios accordingly.
Tips for investors
If you are interested in socially conscious or values-based investing, experts advise you to “do your research.”
“If you have a particular social cause that you care about, don’t just look at the overall rating that an investment fund is espousing,” Sacco advises. “Try to focus on something that’s as specific as possible in terms of what you care about. Then make sure that investment fund or product is addressing that issue for you.”
Eventually, the market will find a way to better measure these factors for investors, which will help people as they make their choices, he noted.
Hersey, meanwhile, also advises investors to do their own due diligence, to understand exactly what they are investing in.
“My primary tip would be to look underneath the hood and understand what companies are part of the fund or portfolio that you’re investing in,” Hersey said. “There are a lot of funds that are labeled ‘socially responsible,’ but when you look at the underlying holdings, some of the companies may not be.”
By analyzing companies holistically, including with an environmental, social and governance lens, one is better able to identify areas of risk too, according to Hersey.
Safety issues or labor challenges can often wind their way into financial statements in the future, she noted.
According to Beirne, any investor interested in value or socially responsible investing needs to assess their goals and risk tolerance.
“I always encourage people to go and speak to a few different firms, so they can get a good sense of what is out there, what makes sense to them, and the types of investments they can invest in across different asset levels,” Beirne said.
