Oct. 25, 2021

12. For busy people looking for socially responsible investments


Today's letter is about how to find socially responsible investments if you are a busy investor. 

Here's the letter:

I don't have time to make sure companies are on the up and up, is there a way to quickly pick socially responsible investments?

There are some quick options. 

If you are busy and not the type to pick individual stocks, you may want to choose from some socially responsible mutual funds that have already been bundled together. They tend to perform well, just as well, some data suggests they perform even better than “mainstream” funds. Check with a financial advisor for legally binding advice, but here are some examples for illustrative purposes:

  • Vanguard's index fund VFTAX excludes fossil fuels, nuclear power, weapons, tobacco, alcohol, and adult entertainment (lol). It had a 23% return last year. To learn more about ESG, check out episodes 3, 6, and 9.
  • Fidelity's index fund FITLX includes companies with higher ESG scores relative to their peers. Their return was 19% last year.
  • Impact Shares' Minority Empowerment ETF NACP includes companies that are "empowering to minorities." Their return was 26% last year.
  • State Street's gender diversity ETF SHE includes companies with higher executive-level gender diversity compared to their peers. Their return was 18% last year.
  • BlackRock's low carbon target ETF CRBN includes companies with low carbon footprints relative to their peers. Their return was 17% last year.

If you are someone that chooses your own individual stocks, and you are busy, the buzziest option is the one that seems to be the hot topic, and that is going according to the ESG ratings. That is a risk rating that is based on 3 categories: Environmental, Social, and Governance. There’s a lot of enthusiasm for this rating system, but it is far from perfect. Here is a sampling of ESG risk scores:

  • Microsoft: 15 (great environmental score, average human capital development, average or good corporate governance, good privacy & data security)
  • Amazon: 27 (average carbon footprint, whack labor management and corporate behavior, good corporate governance and privacy & data security)
  • Tesla: 31 (negative environmental impact of their batteries, bad working conditions for employees, Elon Musk is erratic)
  • Fox Media: 41 (bad carbon emissions, average labor management, bad corporate behavior, good corporate governance)

It’s not a perfect rating to use for a variety of reasons. It isn’t completely inclusive of everything you might care about, if you’re thinking about social responsibility. Also, I do wonder sometimes about the supply chain of a company. Maybe the company itself isn’t on the books for inflicting some serious harm on our world, but their partners do, or their suppliers do. So, it’s not perfect, but it is something. And if you’re busy, this is better than not having any way to sort through companies.

If you have been thinking about getting a financial advisor anyway, this might be a perfect way to begin your relationship with them, by laying out what your values are and having them keep that in mind as they put together your portfolio.

To submit your letter to the show, email spenddonateinvest@gmail.com

To support the show visit buymeacoffee.com/spenddonate

Support the show (https://www.buymeacoffee.com/spenddonate)
Transcript

Today's letter is about how to find socially responsible investments if you are a busy investor. Here's the letter:

I don't have time to make sure companies are on the up and up, is there a way to quickly pick socially responsible investments?

There are some quick options for illustrative purposes- please do check with a financial advisor for advice you can use to create your own investing strategy.

If you are busy and not the type to pick individual stocks, you may want to choose from some socially responsible mutual funds that have already been bundled together. They tend to perform well, just as well, some data suggests they perform even better than “mainstream” funds. Here are some examples:

  • Vanguard's index fund VFTAX excludes fossil fuels, nuclear power, weapons, tobacco, alcohol, and adult entertainment (lol). It had a 23% return last year. To learn more about ESG, check out episodes 3, 6, and 9.
  • Fidelity's index fund FITLX includes companies with higher ESG scores relative to their peers. Their return was 19% last year.
  • Impact Shares' Minority Empowerment ETF NACP includes companies that are "empowering to minorities." Their return was 26% last year.
  • State Street's gender diversity ETF SHE includes companies with higher executive-level gender diversity compared to their peers. Their return was 18% last year.
  • BlackRock's low carbon target ETF CRBN includes companies with low carbon footprints relative to their peers. Their return was 17% last year.

If you are someone that chooses your own individual stocks, and you are busy, the buzziest option is the one that seems to be the hot topic, and that is going according to the ESG ratings. That is a risk rating that is based on 3 categories: Environmental, Social, and Governance. There’s a lot of enthusiasm for this rating system, but it is far from perfect. Here is a sampling of ESG risk scores:

  • Microsoft: 15 (great environmental score, average human capital development, average or good corporate governance, good privacy & data security)
  • Amazon: 27 (average carbon footprint, whack labor management and corporate behavior, good corporate governance and privacy & data security)
  • Tesla: 31 (negative environmental impact of their batteries, bad working conditions for employees, Elon Musk is erratic)
  • Fox Media: 41 (bad carbon emissions, average labor management, bad corporate behavior, good corporate governance)

It’s not a perfect rating to use for a variety of reasons. It isn’t completely inclusive of everything you might care about, if you’re thinking about social responsibility. Also, I do wonder sometimes about the supply chain of a company. Maybe the company itself isn’t on the books for inflicting some serious harm on our world, but their partners do, or their suppliers do. So, it’s not perfect, but it is something. And if you’re busy, this is better than not having any way to sort through companies.

If you have been thinking about getting a financial advisor anyway, this might be a perfect way to begin your relationship with them, by laying out what your values are and having them keep that in mind as they put together your portfolio.

So those are some tips for busy investors. To recap, 

If you don’t pick individual stocks, choose a mutual fund that has been put together for the purpose of socially responsible investing. I mentioned a few options before, but most investment companies nowadays do include some options for values investing.

If you do pick individual stocks, consider using the ESG rating if you don’t have time to roll up your sleeves and research the annual reports and analysis of companies you are interested in.

If you work with a financial advisor, or have been considering it, give them this task! Give them a set of values to consider when putting together a portfolio for you.

To submit your letter to the show, email spenddonateinvest@gmail.com

To support the show visit buymeacoffee.com/spenddonate