Impactful Investing

Why a socially responsible investment strategy is a good idea—and how it can pay off.

We all should know by now the importance of planning for retirement, whether you’re coming at it from an individual level or you’re a business owner deciding on a retirement investment plan for your employees. And when you’re looking for ways to invest for the future, it would be wise to consider a sustainable, responsible and impact investing (SRI) strategy. That kind of investment approach takes into consideration environmental, social and corporate governance (ESG) criteria, things like the sustainability practices and environmental impact of a company, what its record is on labor relations or workplace safety, and whether there’s diversity on its board. More than one out of every four dollars under professional management in the United States—or more than $12 trillion—was invested by following an SRI strategy as of the end of 2017, according to the US SIF Foundation’s 2018 Report on U.S. Sustainable, Responsible and Impact Investing Trends.

“It’s just growing at a huge rate, much faster than the overall industry,” says Andrew Hill, cofounder and president of Naples-based Andrew Hill Investment Advisors, which has $100 million in assets under management and looks at ESG criteria when working on investment plans with clients. “SRI started to take off after the financial crisis, when people were mad at banks and saw another bump two years ago when environmental and ethical issues really started to take hold. Investors want to place funds in companies that may be more aware of those things.”

We spoke with Hill to get his insights on why a socially responsible investment strategy is a good idea—and how it can pay off.

SRI means less risk. A company with strong corporate governance and a desire to create positive environmental and social impacts has less chance of negative outcomes, says Hill. Andrew Hill Investment Advisors does its own research and is skilled at spotting businesses where there’s potential for bad behavior from a CEO or a violation of environmental regulations, things that could impact a company’s bottom line.

“Quite often when the issue is disclosed it tends to have a dramatic and immediate impact upon the company’s stock price,” says Hill. “Just by reading financial statements we have come across a lot of potential problems. And the big problem usually isn’t the first one. There’s usually a series of small events leading up to a much larger event.” 

And the potential for more reward. Many of the companies focused on doing environmental and social good are emerging leaders in their fields. “There’s a big growing economic opportunity with the kinds of companies that we target,” says Hill. “A lot of these emerging trends that quite often result in better outcomes for society are also actually better outcomes for your portfolio.” He points to companies his firm invests in like NextEra Energy, the parent company of FPL that’s known for its clean-energy focus and has been ranked No. 1 in the electric and gas utilities industry on Fortune’s 2019 list of “World’s Most Admired Companies,” and Trex, the manufacturer of composite decking that uses components like recycled plastic film in its eco-friendly products .

Companies that strive for diversity are also often leaders in innovation. “It’s a significant benefit to companies as they continue to grow to be seeking out new ideas and insights,” says Hill. “It’s very helpful to have people of different backgrounds who understand society differently.”

It’s a chance to do good while doing something necessary. “You need to invest if you want to be retired someday,” says Hill. “And we want to have holdings that have attributes that really stand out in their positive benefit to society.” Hill recommends that employees ask their employers about SRI options when it comes to their 401(k)s or pension plans. “It’s a matter of getting the asset options into the plans,” says Hill. “Like a lot of things in life, it doesn’t happen [extensively] until people start shifting their business to firms that do offer those.”

It’s the way of the future. Hill sees a day when SRI will just be the norm when it comes to investing. “I think in the future there won’t be any demarcation between firms like us that are recognized as experts in this area and the rest of the investing community,” says Hill. “I think it will just be a skill set that everyone will learn. Very quickly the lines of demarcation will be blurred, and this will just be a basic analysis that you need to do if you want to be successful.”