When Does One Become a Socially Responsible Investor?

Submitted by Scott Kitson on August 6, 2018
Photo by Priscilla Du Preez on Unsplash

Have you ever wondered, what do I have to do to be a socially responsible investor? Is there a minimum commitment? What’s on the sustainable, responsible and impact investing (SRI) horizon? Green America’s executive co-director Fran Teplitz spoke with George Gay, CEO of First Affirmative Financial Network, a national network of financial advisors specializing in socially and environmentally responsible investing, about his SRI journey and insights.

Fran, Green America: People find their professional passion and moorings in different ways - tell me about your background and how you became a national leader in the SRI field.

George, First Affirmative Financial Network: I grew up on a family farm in the 1950s and 60s near Lake Erie. I remember as a kid people saying, “Never put your face in the water!” The lake was so polluted you didn’t want to risk getting sick, and even now I can’t swim correctly because I’m always thinking I shouldn’t put my face in the water. When Silent Spring was published in 1962, it reinforced the values of conservation that I was brought up on, and expanded people’s appreciation of the need for environmental protection.

After graduating from West Point, and after handling the financial management of the “city part” of an army base for six years, I became a Certified Financial Planner.

That’s when my lifelong interest in environmental protection intersected with my passion for investing, and I became the portfolio manager of an environmentally-focused mutual fund in the early 1990s.

Then in 1988 I met Green America’s founder, Paul Freundlich, who inspired me to fully focus on SRI. Green America had a national membership of conscious consumers and investors, and as I became the COO of the First Affirmative Financial Network (First Affirmative), one of our early goals was to serve Green America’s members with SRI investing options. We’ve been growing ever since.

Fran: How do you define SRI? Is there a minimum commitment required? If so, what?

George: That’s a great question. SRI started out as socially responsible investing and was explicitly rooted in values. Institutional money managers have added the term ESG to the lexicon, which is a way to measure a company’s performance on environmental, social, and corporate governance issues. And these are important measurements to examine, but they also miss some critical considerations because they don’t include negative (or exclusionary) screening. That is, excluding companies from your portfolio if they don’t meet certain values-based criteria.

For example, a gun manufacturer or a fossil fuel company or a tobacco company might otherwise earn high ESG scores simply because they recycle their paper, or make it a practice to hire and retain women. But the values-driven investor will still want to avoid these companies.

Fran: What do you think are the most positive signs for socially and environmentally responsible investing to become the norm?

George: Every marketing survey shows that women and millennials want to invest with their values. We need to reach out to them and show how to make this a reality, how they can act on their values as investors.

SRI is also growing because it’s extending beyond corporate behavior to include federal government public policies. More so than ever, investors are thinking about the actions of the federal government in new ways. We now see investors being energized by corporate conduct and public policy. Ultimately, this creates more awareness of the benefits of SRI.

Fran: The next question of course is what do you think are the primary hurdles to the growth of SRI?

George: It’s challenging in that there is no single set of rules about what makes a good company; there are a variety of perspectives. The client needs to participate in the process and identify the most important investment values for himself or herself. This is a challenge for advisors who are not very familiar with SRI, and this is where First Affirmative and our SRI Conference play a significant role.

Another hurdle is that we need to make sure that the perfect doesn’t become the enemy of the good. Since there are no perfect companies, no portfolio will be perfect by every measure. That shouldn’t prevent us from investing in companies if they meet certain criteria, and if we are committed as investors to urging those companies to do better through shareholder action.

Fran: Thousands of Green America members have recently taken economic action in support of gun control. As an investment professional, what is your view on divesting from gun manufacturers?

George: At First Affirmative, we listen to our clients. At one point our managed account program included a company that had a wholly owned subsidiary that manufactured guns. That meant our investors had about a one-half of one-percent exposure to the gun manufacturer. But even that was too much for our clients. So, we sold off that company. We also engage in shareholder action to advocate for safer corporate behavior, for example, banning bump stocks that turn firearms into near automatic weapons (more information about this is available here). Yes, investors have a role in protecting communities.

Fran: Is there a minimum level of action needed to qualify as a socially responsible investor?

George: No. There is a spectrum of socially responsible investing activity – the most important thing is to get on the journey! Investors need to ask themselves: “What do I care about the most, that I want to influence through my investment decisions?” When people realize that their money is part of their life, their legacy, their family and community, and their impact on the world – when you start to think this way, you are becoming a socially responsible investor. Socially responsible investors break down the wall between their assets and the values that guide the rest of their life.

Fran: What’s next on the SRI horizon?

George: Having next-generation wealth management technology and research is definitely on the horizon. As part of Folio Financial, a brokerage and custody technology company, First Affirmative is looking forward to proving more clients with cost-effective SRI investing options, information and tools. For example, with fractional share technology, investors can now own individual securities in ever smaller sums, which is important to creating a truly diversified portfolio. Also, companies are constantly bought and sold, and corporate policies and operations change. Investing, therefore, is increasingly dynamic, requiring very current and thorough corporate data to keep pace with investors’ concerns and expectations.

Fran: People often ask about the impact of SRI; what are your views on that?

George: How we measure impact is the next big challenge for the SRI Industry! There are many examples of changes in corporate behavior resulting from investor and consumer pressure. That said, there is more to examine from a systems perspective. We need to identify the impact we are actually having to make future investment decisions that will help create the kind of world we want. I believe SRI has a key role in building a better future for all of us.

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