While investors are interested in helping people and the planet, we also want our investments to generate sufficient return. Decades ago, when there were only a handful of managers willing to conduct ethical screening and shareholder advocacy, it was more difficult to create fully diversified portfolios which offered competitive financial returns.
Today, with hundreds of socially responsible funds and managers investing in virtually every asset class, it is possible to design and maintain investment portfolios that consistently perform similarly to the conventional investments. Dozens of SRI mutual funds regularly earn 4- and 5-star Morningstar ratings.
In addition to mutual funds, there are separate managed accounts, exchange-traded funds, index funds, individual stocks and bonds, community development investments, and private equity and alternative investments, all of which make it possible to honor the diversification tenets of modern portfolio theory and the industry guidelines for prudence and fiduciary responsibility, which can reduce volatility and improve long-term returns.
But don’t just take our word for it! There’s plenty of research available to those who want scientific proof that integrating environmental and social factors does not have a negative impact on performance. In 2007, the United Nations released the report, “Demystifying Responsible Investment Performance”, a meta-analysis that compares 20 academic and 10 broker SRI studies to conclude that 27 of the 30 research studies show either a positive or neutral correlation between social and financial performance. Other peer-reviewed and published studies have been awarded the prestigious Moskowitz Prize, sponsored by the UC Berkeley Haas School of Business.
Research on the status of the SRI industry includes the biennial Trends Report and other reports on emerging markets, community investing, alternative investments, and defined contribution plans. A 2012 meta-study of 100 SRI studies by DB Climate Change Advisors is considered to be a definitive examination of the relationship between environmental, social, and governance factors and financial performance. The United Nations’ Principles of Responsible Investment also published two meta-studies in 2007 and 2009 with similar findings and features a wide variety of global research on SRI.
Another indication of the competitive performance of SRI funds is the performance of individual SRI products. The MSCI KLD Social 400 Index, for example, has outperformed the S&P 500 since it started in 1990. The Forum for Sustainable and Responsible Investment (USSIF) maintains a Mutual Fund Performance Chart of its member funds. Another comprehensive mutual fund performance chart can be found at http://socialfunds.com.
Please remember that past performance is no guarantee of future results. All investments can lose value.