You Your Values Your Legacy
Five Myths about Responsible Investing
Can investors actually earn competitive returns while making a positive impact?
Responsible investing comes in many names and forms, so it is perhaps not surprising that the public remains confused as to its effectiveness in building wealth over the long term. This article will separate misconception from reality, and show that SRI deserves consideration by serious investors.
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Performance has been lousy.
There is no performance difference between social and traditional funds. Extensive research on social funds shows that performance is substantially the same. Studies published in the Financial Analyst Journal and by other groups have proved the point that SRI funds should be viewed as just another effective method of security selection (not unlike value investing or a growth philosophy.) It works, if applied consistently.
These studies have also concluded that corporations do benefit financially from good “corporate social responsibility” (CSR). They enjoy competitive advantages through lower operating costs, stronger brands and a lower cost of capital. While some socially-shunned businesses (like tobacco) can have good financials, sustainable investors are rewarded with the better financial characteristics of the CSR leaders.
Sustainable investing is a radical departure from traditional investing.
SRI is LITTLE different -- for a LOT of impact.
Sustainable and responsible investing isn’t radical. In fact, some strategies are termed “Best-of-Class” because they are designed to look and feel like the benchmark indexes. You will see the same diversification of industries (and countries), similar volatility and very competitive returns -- but those portfolios are comprised ONLY of those companies that meet stringent environmental, social and corporate governance standards. The performance is very similar, and the “footprint” is far superior. Lower emissions, less waste, better employee and community policies and independent governance that “keeps an eye on the store”. Why not choose this over the alternative, if the performance is similar?
Boardwalk Capital Management
Asia / Australia 14% JP BZ 4 4 CA 6
AUS IN 6 2
GER 4 FR 4 SW 6 SP 2 NET 2
Country allocations of a “best-of-class” SRI portfolio are designed to be nearly identical to its global benchmark index.
SRI is a narrow corner of the investable universe
Sustainable investment opportunities are everywhere.
Stocks get most of the attention, but other asset classes have attractive “impact” segments.
Likewise, real estate can be segmented into “social impact” projects such as organic farmland conversion or so-called “brownfield remediation” projects that restore toxic sites – improving communities while enhancing the tax base. Many firms have proven their mettle in these segments, offering investors a long track record of solid investment returns. Private equity offers investors the ability to invest in so-called “Impact Investments” – those with a profitable business model focused on meeting a social need. Returns, while positive, are seldom eyepopping -- but the human impact surely is. Selecting the right fund sponsor is crucial. Their acumen in separating “opportunity from ordinary” is a key to success.
In the bond market, we call these securities “quality of life” or “mission” municipal bonds. They finance schools, hospitals, green space, water systems, etc. that improve the local quality of life. There is usually no decrease in the investor’s yield when investing in these segments. In fact, it is often higher.
Renewable energy offers investors the opportunity for social impact and stable long term investment returns with strong, tax-favored cash flows. Investors have no shortage of attractive and sustainable investment options to consider.
I separate my charity from investing. SRI is charity.
It’s not charity. It’s about PROFIT with IMPACT.
SRI is NOT a zero sum game (i.e., giving up returns in exchange for societal good.)
SRI investors encompass all three areas to multiply the good that can come from their money”
As shown above, returns on sustainable investments have been highly competitive with more conventional approaches. So, SRI is NOT in competition for investors’ charitable dollars, but rather it multiplies the good that the same dollars can do. Investors into so-called “impact investments” will see clearly how their dollars are affecting change. But unlike charity, those dollars are invested (not donated) and are earning a financial return to the investor while making a positive impact. This hybrid philosophy is awakening investors to the power that their money has to “do good” while earning a financial return.
Boardwalk Capital Management
Not in competition, but working together to make the most of investors’ dollars.
SRI is a fringe, treehugger way to invest.
The biggest institutions (pension plans, endowments) invest this way. This isn’t some fringe “treehugger” philosophy. Sure, it can be…
But more often, investors see this as
managing the risk that the future will be nothing like the past. How will regulations evolve to deal with issues like climate change? Won’t companies (and their shareholders) that ignore that risk now pay the piper later? Funds who serve many generations of retirees or future students must look far into the future to assess risks that may impair their investments. With hundreds of billions of dollars at risk, they don’t have the luxury of short term trading when things go sour. Sustainable Investing is growing rapidly because of this realization. Today, more than 10% of managed assets have some type of social or responsible mandate! And since
Boardwalk Capital’s strategies are customizable, we can incorporate each client’s unique values into each portfolio.
This IS the new mainstream.
So what are you waiting for???
Championed by top-tier investors…
Real environmental and social impact…
Asset diversification and customization…
Enhances charitable activities…
It’s all there. Just let go of any preconceived notions…
If you’d like to discuss this further, just reply to this email or visit BoardwalkCM.com to learn more. Boardwalk Capital Management