by J. Patrick Costello, CFP and CLU, book author
As a Certified Financial Planner™ serving clients in Northern California, I have been queried with increasing frequency about Sustainable, Green, Socially Responsible Investing (SRI).
In response, I have published “Green Investing: More Than Being Socially Responsible,” a book that is both important and unique.
The importance lies in the fact that as people seek to become better-informed consumers and more responsible citizens, investing has not received the attention that has been given to farming, food preparation, personal transportation, waste disposal, home construction, clothing, and power generation.
I talk to investors every day, and this gives me direct knowledge of the concerns they have, as well as a profound awareness of the information they need – both to understand how to implement SRI, and more fundamentally, how to become successful investors, whether or not SRI is the primary focus.
In the book I begin by addressing the two biggest misconceptions about Sustainable and Socially Responsible investing, shared by so many investors:
1. The erroneous belief that SRI requires financial sacrifice, and/or that it implies reduced investment opportunities for the investor
2. The mistaken idea that SRI requires additional time and specialized knowledge on the part of the investor
This book is unique because in addition to dispelling those two key misapprehensions about SRI investing, it delivers a great deal of supplemental information critical to an investor’s success in today’s complex investment world, including the following:
• Descriptions of basic investment vehicles, including mutual funds and exchange traded funds
• Explanation of the science and software tools used to design personalized risk-adjusted portfolios
• Discussion of why Wall Street firms and Banks may not be the best way to access SRI
• Clarification of the meaning of the titles shown on a financial professional’s business card
• Awareness of the influence of Financial Firm marketing and ubiquitous financial media
• Definition of industry terms such as Impact Investing, Green Investing, and ESG Investing
Unpacking the Concept of Green Investing
Green Investing, with SRI at its core, encompasses the totality of the individual investing experience.
The Green investor is an informed consumer who seeks to invest prudently and responsibly; someone who has a basic working knowledge of investment strategy and the broad investing environment. She is prepared to embrace opportunities and navigate past obstacles as she takes ownership of her investing efforts.
For the purposes of this book, Socially Responsible Investing will be defined as the investment-specific core of Green Investing, and will represent the discrete process of selecting investments for your portfolio that show strong growth potential and are compatible with your ethical and moral values.
Green investors will benefit by understanding the principles behind the design of risk-adjusted investment portfolios. Only after an appropriate investment template has been created should the socially responsible investment screening take place.
Successful Green investing requires an understanding of, and familiarity with today’s investing landscape. An important feature of this terrain is the ubiquitous sales and marketing presence of the huge national and multi-national financial organizations.
The power implicit in this omnipresence is wielded daily like an enormous magnet, drawing investors and their hard-earned money into the maw of these firms’ turbocharged sales operations.
Bolstered by an informed awareness of the tactics and objectives of the Big Brand firms, the investor can immunize herself against their immense marketing power and stay focused on her personal objectives.
Green investors should also be aware that the financial media’s obsession with short-term market movements can be a seriously counter-productive influence on anyone striving to build a diversified, risk-adjusted investment portfolio.
Finally, when seeking financial advice, the Green investor should understand the different skill sets and professional obligations of a wide variety of financial professionals including insurance agents, registered representatives, registered investment advisors, wealth managers, financial advisors, and Certified Financial Planners™.
In summary, this book will help aspiring Green investors do the following:
• Understand the meaning and utility of SRI
• Develop a simple, practical approach to SRI that can be applied successfully to their own portfolios
• Demystify the process of creating a high quality, risk adjusted diversified investment portfolio
• Become better informed while navigating an investing environment filled with marketing propaganda from Big Brand financial organizations
• Avoid being misled and exploited by people who hold themselves out as financial professionals
• See past the daily television and internet stream of esoteric financial data points and trader-centric commentary, most of which is of questionable value to the long-term investor
The following is an excerpt from the book itself, to help potential readers get an idea of the tone and subject matter covered:
“Green Investing: More Than Being Socially Responsible” is an essential guidebook for investors who seek a comprehensive approach to Socially Responsible Investing (SRI), and who wish to be prepared for obstacles and opportunities when pursuing an SRI strategy.
In this book, Patrick’s message is that “Green” investors must consider how they invest, and with whom, as well as what to invest in! He explains that knowledge of the investing environment and the financial services industry is critical to the successful implementation of an SRI program.
This book was written for those who wish to align their investment strategy with Socially Responsible values while navigating the realities of today’s investing environment and generating a competitive return. These objectives do not have to conflict – the first may actually enhance the others.
This book explores the concept of “Green” Investing, which has as its key postulate the desire of many investors to direct their investment dollars to businesses that are Socially Responsible, while earning a competitive return.
The first impediment to Green Investing is one of perception. More than a few people are afflicted with the belief that Socially Responsible investors are relegated to a world of sub-par investment performance. They may be admirably following their hearts, the thinking goes, but investors who invest through the prism of social responsibility are nevertheless making a financial sacrifice.
This is demonstrably not the case. Like other instances of faulty conventional wisdom, the canard that Socially Responsible Investing (SRI) inevitably leads to less than optimal investment returns can be quickly dispelled by looking at the facts.
On March 12, 2012, Morningstar, a well-known company that offers investment information and independent mutual fund analysis (www.Morningstar.com ), published an article by David Kathman, a Chartered Financial Analyst, entitled “Social Responsibility and Fund Performance.”
After digesting a substantial amount of statistical research (summarized in the article), Mr. Kathman concludes with the following statement: “In essence, these studies have found that social screening is a ‘free good.’”
In other words, after evaluating the data, he determined that there is no absolute performance “cost” to investors for utilizing socially responsible screening techniques when building investment portfolios.
The investor must still follow sound principles when designing a portfolio and selecting investments, but the addition of Socially Responsible screening, in and of itself, has been shown to have a neutral impact on performance.
Indexes represent the average value of baskets of stocks, bonds and other securities. They are useful tools that help us recognize broad market trends in the midst of a forest of data points. Some indexes measure the value of very specific types of investments, like healthcare stocks, or high yield bonds, while others reflect broader groupings, such as large domestic stocks.
As of January 13, 2012, the Calvert Social Responsibility Index (Symbol “CALVIN”) of more than 600 Socially Responsible companies had a better five year performance record than does the widely followed Standard and Poor’s 500 Index (Symbol “INX”) of 500 conventionally selected companies.
Skeptics may “split hairs” dissecting index composition or debating the relevance of index performance over various time periods, but this simple comparison of indices is illuminating. Clearly investors with a socially responsible orientation do not automatically face a performance handicap.
I encourage the reader to go to www.Calvert.com and www.StandardandPoors.com for more information on the composition of these Indexes.
This Book is a Call to Action!
My goal is to provide you with practical, real world information that will orient you in today’s investing environment.
When you have digested the information provided in this book, you will be able to function as a Green investor and confidently add an SRI component to your investment process.
You will also have the information you need to avoid the pitfalls of exorbitant fees, unnecessarily limited investment options, misleading propaganda from Big Brand financial firms, and compromised advice from so-called financial professionals.
This Book Is For You If:
• You’re curious about the concept of Green Investing
• You’d like to incorporate SRI principles into your investment process without sacrificing performance
• You’re accumulating a nest egg that you’d like to invest for the long term
• You’d like to know more about the scientific principles involved in building a risk-adjusted diversified investment portfolio
• You notice a contrast between the financial media’s non-stop coverage of short-term stock price fluctuations, and the relative scarcity of advice about developing a long-term investment strategy
• You’re skeptical about investment advice offered by the national banks and brand name financial institutions, many of which nearly self-destructed during the economic collapse of 2008
Once the misapprehensions are gone, and armed with the information and knowledge shared in this book, the educated Green investor will be ready to build a strong, diversified, Socially Responsible investment portfolio.
Article by J. Patrick Costello, CFP®, CLU. Find more information on SRI on his website at- www.GreenRiverFinServ.com or he can be reached by calling (425) 453-6000 or email him at- PCostello@ProtectedInvestors.com