Looking Beyond the Bottom Line
What to keep in mind when it comes to socially responsible investing.
If you’re not already tapped into the concept of socially responsible investing, now’s the time to get started. “It’s growing so rapidly, especially among endowments and institutional investors such as large pension funds,” says Andrew D.W. Hill, a partner at Naples-based Andrew Hill Investment Advisors.
Socially responsible or sustainable investing means taking into consideration things like the environmental impact caused by a company or its products, how a firm interacts with its community and treats its employees, and the way a company is governed. “Governance has been shown to have some pretty good correlation to investment performance,” says Hill.
Whether you’re coming at this topic from the investor side or you’re a local company looking to attract these kinds of investors, here are some key things to keep in mind when it comes to socially responsible investing.
Do your research.
Do you know exactly where your company’s 401(k) plan or your organization’s endowment is invested? You may not have been happy to discover that your money was tied up in BP stock after the Gulf oil spill several years ago, or in a company like Wells Fargo that’s been called out for misdeeds lately. “The information for those warning signs is clearly stated in the disclosures provided by companies,” says Hill. “It’s amazing that more of the local community foundation money and the endowments of environmentally focused organizations aren’t invested in the ESG [environmental, social, and governance] format. It just bewilders me.”
Start at the top—and get some help.
When investing, start by looking at fundamentally strong companies and then delve into environmental, social and governance components, says Jennifer R. Figurelli, the other partner at Andrew Hill Investment Advisors. “That really gives insight into a company’s sustainability strategies alongside its fundamental strengths,” she says. To truly understand it all is a complicated process, which is why it’s often a smart idea to get help from an expert. “Evaluating a company, reading all the annual reports and filings—it’s not something the average layperson is going to do,” says Figurelli. “It’s a time-consuming process to do what we do.”
Evaluate your risk.
Whether you’re a small company or giant corporation, you can look at how you operate your business with social responsibility in mind. Consider your energy use and find ways to reduce it, which could benefit both the environment and your bottom line. Ethical practices can enhance consumer trust and loyalty. “A business that can identify risks, find a way to address them, and then look at some of the positive opportunities is going to have a very strong brand value, which will eventually lead to that business being worth more financially,” says Figurelli.
The concept of diversity and socially responsible investing go hand in hand. Hill says that women and younger professionals tend to have higher interest in socially responsible investing than their older, male counterparts. Diversity within a company and on its board can lead to more innovation and positively impact financial performance. “It’s also just a better way to conduct business,” says Hill.