I love investing money. To me, it is a no brainer and the best way to make money. But, I also “vote with my dollars” and rarely spend money on products that don’t support my eco-friendly lifestyle. One morning I woke up in a panic- I do so much to support socially responsible businesses with my spending money, why wasn’t I invested in socially responsible investments (SRI) that consider environmental, social and corporate governance (ESG) criteria?
I want to be socially responsible in the way I live my life. This includes how I invest my retirement savings. Lately, there have been so many ads about socially responsible investing that most likely are targeted to me- thank you social media algorithms that know exactly what I want.
It is wonderful we now have all these options! Unfortunately it opened Pandora’s box for me and showed me a very strange side of SRI.
My financial planner, who also happens to be my brother-in-law, has had to deal with me constantly asking him questions about SRI. I recently picked one that I read about in a Forbes article, and asked him to help me make a transition to SRI. I was shocked by what he uncovered.
What is Socially Responsible Investing (SRI)?
Before we get into what I found out about socially responsible investing, let’s dig into what it is.
Simply put The Forum for Sustainable and Responsible Investments defines SRI as an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact.
The history of socially responsible investing
While SRI seems to be a big buzz word these days, it isn’t new to the world of investing. I’d even argue that as long as we’ve had investments, we’ve had good people making socially responsible ones.
In the 1960’s and 70’s it was called shareholder activism. One of the first SRI shareholder resolutions was in 1969 when shareholders challenged the use of Agent Orange by the Dow Chemical Company. History is full of good people making good decisions for the betterment of the world.
Nelson Mandela famously advocated for people and institutions to sell holdings of companies that supported apartheid in South Africa. It worked. You can see this today with the Black Lives Matter movement.
This is basic cancel culture and seems simple, right? Well, the thing is, we all have different ideas on what is socially responsible. I personally don’t want to fund the NRA, or pharmaceutical companies but someone else might feel differently. There are also so many bad investment firms that aren’t socially responsible themselves.
Socially responsible investing cons:
I’m not saying that SRI itself is a con. It is not. But I am saying that a lot of these new companies aren’t out to take care of your best interests. They are out to make a buck on a rising trend of SRI.
Before you decide to throw your life savings into a new SRI fund, consider some of these facts that my financial advisor sent my way.
- Many SRI companies have a deceptive history – Most are new to the table. The company I had my brother in law look at had only just begun 5 years ago, but their website used backdating to show returns for 30 years. Essentially, they cherry picked data to make their company look good and like it had been around a long time.
- Managers aren’t even investing in their own funds – The particular company we looked at lost all their managers two years ago, and the fund has completely new managers. The new managers do not even invest their own money in the fund. Seems crazy that I would trust them to manage my money when they do not even put their own money in the fund.
- Many SRI offerings avoid things like alcohol, tobacco, fast food, gambling, pornography, weapons, fossil fuel, nuclear, military but still invest in pharmaceuticals, big tech, and businesses that still aren’t eco-friendly.
- HIGH fees – When I say high fees, I mean ridiculously high fees. All hidden, too. I would never have known that the fees were 5x normal. Who would pay 5x the cost of anything per year, every year, for the rest of their life?
So how can you invest in a socially responsible way without losing your life savings or investing in a corrupt fund?
My financial advisor was able to show me why this fund was not a good investment, and he was able to show me socially responsible investment options that were better options.
The best thing to do is to sit down and talk with your financial advisor about SRI investments and what it actually means.
We looked at the official SRI investments through Charles Schwab and realized that I didn’t agree with all of those investments. As much as I want to officially invest in B Corps and only eco-friendly businesses, it is almost impossible to do. I don’t know about you, but I don’t have the time or expertise to manage my own investments. I truly trust my financial advisor!
We found a way for me to invest in fossil free mutual funds
I finally told me brother in law that I trust him to make the right financial decisions for us, but that I want to be as socially responsible and eco-friendly as possible. I want my investments to match my spending habits.
He found a fossil free ETF that works for me. For now.
I think that eventually the big investment firms will have more options for investing in B Corps and socially responsible businesses. I asked him to be on the look out for new funds as they evolve.
Be sure you work with a fiduciary advisor, preferably a CFP®, and if you do not know who to call, contact my brother-in-law, Dustin Rinaldi, CFP® at 239-444-6111. He would be happy to go over some socially responsible options for you and your family!
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