Socially Responsible Investing (SRI) has always been a central element of my investment thinking, coming from my father Ray McNicholas who established Ethical Financial in 1997. Ray was the earliest advocate in the Irish market of helping clients to invest their money in line with their personal values and principles.
This continues as a core part of Everlake’s investment proposition today. I want to share with you a recent conversation with a client (we’ll call her Alice) who has a particular interest in investing her money both wisely and ethically but had concerns around the price she potentially might pay for her principles. She challenged us that if she invested according to her social principles, would she suffer higher costs and a lower return which could prevent her from achieving her financial planning goals?
We had an in-depth conversation around the “cost” of SRI.
The good news is that research tells us that SRI typically provides at least as good a return as most other kinds of investing over the long term. So, although SRI investing is sometimes presented as having to choose between having an acceptable investment return or investing according to your principles, it would seem that you can have both.
This is backed up by research. In a 2005 working paper at the Wharton Business School titled “Investing in Socially Responsible Mutual Funds”, Geczy, Stambauh and Levin concluded that due to a lack of diversification, investing in SRI mutual funds costs investors only a few basis points a month.
A second study was completed in 2008 by three professors from Santa Clara University (Hamilton, Ho and Statman). The authors produced a working paper titled “The Wages of Social Responsibility”. In this research they explained,
“We find that stocks of companies with high ratings on social responsibility characteristics outperformed companies with low ratings. However, we also find that “shunned” stocks (that is alcohol, tobacco, gambling, firearms, military, and nuclear”) outperformed those in other industries. The two effects balance out, such as socially responsible indexes have returns approximately equal to those of conventional indexes.”
This is just one of the issues to consider when thinking about SRI. There’s a lot more to think about to successfully invest in line with your principles. Nothing will beat sitting down with someone who is fully versed in this space. At Everlake, we have longstanding experience and expertise in helping people to invest in line with their own preferences and convictions.
Would you like to find out more about how Everlake can assist and guide you in investing on your terms, without it costing the earth?