How to Make Money and Make a Difference

September 7, 2016

fb-SRISep16How can you make a difference as an investor? How can you grow your portfolio and also make a positive impact on the world around you?

These are the questions we’re increasingly hearing from investors.

They know they need to invest for growth so they’ll have a secure and comfortable retirement, but they also see their investments as a way to vote with their dollars.

If two companies—or two funds—are doing well, they’d rather invest in the one that’s more environmentally friendly or more focused on providing safe workplaces for its employees.

They want to support companies that are trying to do the right thing, and they also believe that these companies may be more successful over time. A company that makes money based on limited resources or questionable ethics may face new regulations or costly lawsuits that could really hurt its bottom line.

But how can investors really evaluate a company’s environmental record? How can they know if a company is treating its workers fairly or if a company includes women on its board of directors? Few people have the time or the expertise to do this important work, but it’s what sustainable responsible impact (SRI) funds have been doing for decades.

How SRI funds can help you make a difference

SRI funds—also known as socially responsible or sustainable responsible funds—have a long history of helping investors generate positive returns and make a positive impact. SRI funds have become one of the fastest growing areas of the fund industry. Assets in SRI funds increased from $641 billion to $1.93 trillion, according to the Forum for Sustainable and Responsible Investment (USSIF).

We’ve long covered SRI funds in NoLoad FundX, and we’ve also managed sustainable investing portfolios for clients for nearly 20 years, so we’ve seen firsthand how SRI funds have evolved over the years.

When we first started managing sustainable investing portfolios, most SRI funds were focused on divestment: they avoided investing in certain industries or companies, like tobacco, weapons or, more recently, fossil fuels. This allowed investors to sidestep certain industries they found objectionable, but it didn’t help them identify or support companies that were trying to make a positive impact.

SRI funds now have comprehensive approach to impact investing: they use positive screening to invest in companies with strong environmental, social, and corporate governance (ESG) practices, and they don’t necessarily divest from companies that they think could do better. Many SRI funds now invest in companies in an effort to change them. They use their power as shareholders to actively engage with the company by filing shareholder resolutions, voting proxies or meeting with company management to try to help the company move forward.

For instance, instead of excluding all fossil fuel companies, an SRI fund may invest in an oil company and then use its power as a shareholder to help the company better address the challenges of climate change or increase its investment in renewable energy sources.

How to Choose SRI funds 

How should you choose an SRI fund? Some investors focus on a single issue and seek out funds that are specifically focused on the environment, for example. But rather than focusing on a single issue, we believe investors can make the biggest impact by considering a diverse mix of SRI funds and investing in the funds with the best recent returns.

A version of this article by FundX President Janet Brown appeared on Forbes

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Sanford Carnahan September 10, 2016 at 10:52 am

I am a trustee for a small 501(c)(3). In 2014 we searched for an SRI fund that did the job and had reasonable financial performance. We found most SRIs were more focused on their mission and lacked acceptable financial performance. However, we did find PRBLX (Investor shares) fit our needs. Earlier this year we converted to PRILX (Institutional shares) for a lower expense ratio.

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