Responsible investing: Making an impact

Socially responsible investing is a philosophy that has earned its place in the investment conversation at the individual, family and philanthropic level. Baby boomers are starting to think more about passing on their assets as well as their values through this approach. Millennials may choose to have it transcend their entire portfolio. But for most, it is really about finding the right balance and then customizing your approach.

Values-based investing accounted for $6.57 trillion, or roughly one in every six dollars under professional management, according to a 2014 report from the Forum for Sustainable and Responsible Investment (US SIF).  This number is 76 percent higher than the $3.74 trillion noted in SIF’s 2012 report.

For many years, negative screening was the focus of socially responsible investing (SRI). Investors chose what not to invest in and the portfolio was adjusted to match. Personal, religious and environmental values always played a role in that process. Today, however, the popularity of a more positive and engaging approach to socially responsible investing is on the rise. According to the 2014 U.S. Trust Insights on Wealth and Worth® survey, 75 percent of millennial investors feel it is more important to invest in companies that will have a positive social or environmental impact than to boycott companies that are harmful.

There are three socially responsible categories that offer investors opportunities to combine their personal values with competitive investments when assessing where to invest. SRI portfolio managers look for companies with strong fundamentals as well as those that manage human capital effectively, are good environmental stewards, and/or have effective corporate governance. 

One example of human capital management can be “gender lens” investing – investments focused on improving the lives of women and girls. In many cases, companies with progressive policies toward gender equality are well managed, and often help recruit and retain top talent.

Environmental stewardship examines the use of water, alternative energy, climate change and clean tech. Companies that are focused on sustainable efforts can be rewarded with cheaper operational costs in the future. This can ultimately benefit the investor if the company’s cost saving technology produces a higher profit.

Corporate governance focuses on transparency, disclosure, reporting, and incentives. For investors interested in corporate governance, it is important to understand the operations of a company and to find companies that communicate effectively with stakeholders. Often, investors can assess a company’s commitment to transparency by taking the time to review its website to determine how well the company communicates with its stakeholders.

The growing interest in socially responsible investing is increasing the demand for new products and services. To meet this demand, U.S. Trust developed Socially Innovative Investing (S2I), a proprietary strategy based on a growing awareness that strong corporate financial performance and social responsibility are not mutually exclusive; rather, they are mutually beneficial qualities.  S2I takes traditional socially responsible investing a step further. The S2I process scores companies based on more than 400 distinct characteristics that we believe are a reflection of thoughtful management and potential sources of value.

Through a specially appointed “ESG Council” comprised of senior thought leaders and executives throughout the company, Bank of America continues to study issues related to socially responsible investments and investing behavior.  

Ultimately, the demand for and evolution of socially responsible investing is changing the investment landscape today, creating a new, more dynamic approach to SRI through a wider range of investment options.

Ramona Mockoviak is senior vice president and private client advisor and Jason Baron is managing director and portfolio manager at U.S. Trust.

This content represents thoughts of the author and does not necessarily represent the position of Bank of America or U.S. Trust. U.S. Trust operates through Bank of America, N.A. and other subsidiaries of Bank of America Corp. This article is designed to provide general information about ideas and strategies.  It is for discussion purposes only since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. 

Investing in securities involves risks, and there is always the potential of losing money when you invest in securities.Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

U.S. Trust operates through Bank of America, N.A. and other subsidiaries of Bank of America Corporation. Bank of America, N.A., Member FDIC.

Investment products: Are Not FDIC Insured  Are Not Bank Guaranteed May Lose Value.

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  The Forum for Sustainable and Responsible Investment, “Report on US Sustainable, Responsible, and Impact Investing Trends 2014”, 20 November 2014.
2 U.S. Trust Capital Acumen, “Socially Innovative Investing (S2I)”, 2014.
3 U.S. Trust, “Understanding Socially Innovative Investing”, January 2015.