We’ve all heard the maxim “invest in what you know.” While this is a good place to start if it gets you to invest in the market, eventually you’re going to need some objective measures to make sure your investments are suited to your goals in the long run.
Socially Responsible Investing (SRI) is the epitome of the subjective invest-in-what-you-know strategy.
Historically, socially responsible investing meant NOT investing in companies that were considered “bad” on some subjective scale (morals, religion, race etc.). Thus SRI was an exclusionary, values-based process: bad companies were intentionally excluded from being investment options. The issue arises when your subjective system takes otherwise solid investments out of the running because Company X sponsored the Miss America Pageant, or your father prefers Coke over Pepsi, or nicotine/cigarettes are the devil’s preferred cancer stick.
Research shows that these kinds of portfolios perform poorly compared to a newer trend called sustainable investing.
Sustainable investing looks for companies that score high on the Environmental/Social/Governance (ESG) scale, meaning, sustainable investing works on including good companies measured by an objective scale rather than excluding bad companies measured by a subjective scale.
In his research, Mike has found that high ESG scores are a strong indicator of the financial viability of a company. This, paired with recent growing interest in socially and environmentally conscious companies and investments, led to the creation of the CGN Sustainable/ESG Portfolios.
Through tools like Morningstar Direct and Sustainalytics, Mike has developed a set of portfolios that target companies with proven track records and high ESG scores while also screening for controversy factors (see graphic). Most holdings in each portfolio are ETFs with low to no transaction costs, making these portfolios viable options for every investor.
While we do offer these more specialized portfolios, our investment philosophy already focuses on picking quality investments for the long-term. If socially conscious investing is important to you, please contact our office so we can discuss options.