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Jun 1, 2019

Investors with A Cause Can Put their Money Where their Hearts Are

Sponsored Content provided by Alyce Phillips - Marketing Director, Old North State Trust LLC

Should strictly financial considerations be the sole criteria for investing? Or does it make sense to consider the non-economic impacts that investment decisions have on the world?

For many investors, it’s important to put their dollars where their beliefs are. A shorthand way to describe this attitude is “ESG investing,” the initials standing for environmental, social and governance, meaning how corporations govern themselves. Investors may be concerned with such matters for purely ethical, altruistic reasons. But some ESG investors take a pragmatic approach, too, on the basis that attention to these three factors determines how sustainable an investment will be.

Considering sustainability is another way of asking: will this enterprise be viable for the long term?

On a purely ethical basis, some individuals and institutions have been considering these factors for many years. Examples included people opposed to the Vietnam War divesting themselves of stocks in military contractors, or putting pressure on public pension funds not to invest in companies doing business in South Africa during the Apartheid era.

Even earlier, union pension funds have directed their investments toward what they considered socially desirable ventures. In the 1950s and 60s, for example, the union representing electrical workers nvested in low-cost housing ventures; miners supported development of health facilities.

Environmentally conscious investing has a high profile today. Nowadays many individual investors, and some institutions, too, are focusing on so-called “green industries” such as solar or wind power, steering clear of fossil fuel companies, or otherwise measuring companies’ carbon footprints. On the “social” side of things, it can get complicated. For example, some people avoid buying stocks or bonds of companies that take certain political or religious positions on public issues. Other investors, of course, may want to support those same corporations precisely because of the positions they have taken.

Aside from the matter of the investor’s own values is the question of how well the ESG approach addresses an investment’s value. On this question, economic theory has made a 180-degree turn over the past half century. Many who have studied the matter now believe that ESG criteria can help predict a company’s exposure to risk and its return on investment.

At one time, economists believed it was a mistake to consider anything but a company’s financials. In the 1960s and 70s, the conservative economist Milton Friedman argued that such considerations actually hurt investment performance. But that view also posed a dilemma. If the bottom line is the only consideration, then the social or environmental costs of an investment decision can become somebody else’s problem. Is it unethical to let someone else pay the price for your profits? Another way to think about it: does “social capital” have value that investors should consider?

A number of twenty-first century studies suggest that it does. Contrary to Friedman’s belief, some economists now believe, that value is reflected in economic performance. One obvious example is that good corporate governance, which includes transparency, rigorous audits, and control of conflicts of interest, correlates with reduced risk and long-term profitability.

So if you want your investments to promote your values, do good in the world, and still grow, how do you go about it?

It’s easier for large institutions to do the necessary homework, and keep up with the records of the companies they invest in. Examples are college and university endowments, government and union pension funds, and religious organizations. But to make this easier for individual investors, such products as socially conscious mutual funds are now available. The best of these will provide detailed guidelines about where they will – and won’t – put their clients’ money.

The simplest of these guidelines involves a screening process to rule out companies in certain product lines, or that do business in problematic places. Common examples are those that profit from gambling or selling alcohol, tobacco, or weapons. Other areas a fund may steer clear of include polluting industries or companies that do business with autocratic countries.

Somewhat more sophisticated are guidelines that seek out companies with a positive social or environmental impact. These assess corporations’ business practices to determine if they pursue a specific benefit. That might be taking certain environmental initiatives; it might be observing a specified religious ideology.

Other objectives can include supporting communities, whether those are high-poverty inner-city or rural areas or indigenous people around the world. Funds aimed at these goals can help small businesses that otherwise have trouble getting more conventional financing.

On the corporate governance front, activist investors, whether large funds or individuals, now have a say on the biggest corporations’ executive pay practices. A provision of the Dodd-Frank law passed after the 2009 financial crisis, this has been considered an important boost for shareholder advocacy.

Lest this all seem too earthy-crunchy, or divorced from business realities, consider so-called “impact investing.” This is a system of applying standard business-school tools to social-benefit investments, to ensure that all their objectives are actually met. That means not only their social goals, but also their financial returns.

Maybe the best advice on this subject is first, know your goals and what non-financial objectives you want to achieve. Then second, don’t let your heart get the better of your head. Many environmentally or socially responsible companies and funds are well managed and provide a good return on investment; but not all. Also, remember that while small companies may have great ideas and great potential, larger ones have the resources to hang in for the long run, and to acquire promising start-ups. As with any speculative investment, putting all your eggs in one basket is dangerous.

To help navigate this complex universe, it’s a good idea to consult with experienced advisors who can help you match your objectives, including your tolerance for risk, to suitable investments. The investment experts at Old North State Trust can help you clarify all your investment goals and point you in the right directions about where to make your investment dollars work for what’s most important to you.

As Marketing Director, Alyce works to develop, budget, and implement marketing plans, which include advertising, coordination of conferences, special events, and development and maintenance of marketing materials. She also oversees the company’s website, in-house articles, and fostering community initiatives within the organization. Alyce received a BS degree in Interior Design from East Carolina University with a concentration in Business Administration and obtained her teaching certification from UNCW. Old North State Trust professionals have many years of experience and for over a decade have assisted clients in identifying and reaching their financial goals. For more information, visit or call 910-399-5470.  

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