February 25, 2021
I’ve had a growing number of clients ask me about “responsible” investing. Generally speaking I’ve found that I need to ask a few more questions to clarify what they are really trying to achieve. More often than not I find that what they are really asking for is morally responsible investing.
Socially responsible should not be confused with morally responsible. They are in fact two distinct and different concepts, though they are frequently lumped together. Just google morally responsible investing. You’re going to see more results for socially responsible or ESG investments. On the surface it may sound like I’m splitting hairs, but consider the following:
“Socially responsible” or ESG (environmental, social, and governance) investing has rapidly gained popularity in recent years. It has become cachet to hold companies responsible for business practices that are detrimental to the environment, infringe on human rights, and discourage diversity. So far, so good. I don’t think anyone would argue against being inclusive, promoting equality, or protecting and preserving our natural resources. But…
A “socially responsible” strategy may exclude a company that tests shampoo on a rabbit, while including companies that actively support legalized abortions. Think about that for a second. A company held in a socially responsible fund may derive revenues from marijuana sales because it’s classified as medicinal, while the same fund prohibits tobacco stocks. Someone setting out to invest with their moral compass in hand, would likely be horrified to find out that they own companies that contribute big money to Planned Parenthood or share profits with glorified drug dealers. But they may fit nicely into the ESG “socially responsible” agenda.
Is this really what you are looking for? The question that plagues many investors is this: What do I actually own and is it okay to own it? If you are asking this question, congratulations. Most people have no idea what they own or why they own it. If you hold individual stocks, it is easier to know exactly what you own. The problem is that for the vast majority of investors, it’s not an appropriate way to diversify.
Have I piqued your interest? Good. In the next blog post, I am going to cover a couple different ways to approach morally responsible investing. Can it be done? Is it worth all the trouble? Stay tuned.