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A Win-Win? Socially Responsible Investing

The release of Forbes magazine, 2019 Just 100 list suggests that Adam Smith’s book, The Wealth of Nations, may be more prophetic than ever. In Smith’s book, published in 1776, he used an “invisible hand” metaphor to suggest that in a free-market economy, businesses pursuing their own economic interests can end up serving the interests of society. Fast forward to today and the Just 100 list demonstrates that many large, U.S. publicly-traded corporations are successfully aligning business practices with indisputable public good—helping to support the growing movement in socially responsible investing.1

What is Socially Responsible Investing?

Socially responsible investing (SRI) refers to the inclusion of environmental, social and governance (ESG) factors in the selection and management of investments. Fund managers have been recognizing that many investors are interested in dedicating a portion of their portfolio to SRI. In fact, assets in Canada being managed using one or more SRI strategies grew from $1.5 trillion in 2015 to $2.1 trillion at the start of 2018.2

However, similar to the organic food movement, there have been varied standards by which SRI is measured. As such, fund managers may not always do a good job in maintaining the integrity of SRI. As an example, two of the largest fund managers were recently scrutinized for holding questionable investments in their SRI funds, including investments in tobacco companies and significant greenhouse gas emitters.3

While there has been some confusion in the industry over how SRI is measured, the good news is that information available to investors continues to improve. Forbes’ Just 100 list, only in its second year, is just one example. It was born from the belief that if people have the right information, they will buy from, invest in, work for, and otherwise support companies that align with their values. The list ranks the largest publicly-traded U.S. corporations by worker, customer and community treatment, environmental impact, job creation and product quality, and leadership. To help provide impartiality, it is co-created by Just Capital, an independent, non-profit research organization.

With the release of the Just 100, there are many promising stories of corporate self-regulation:

  • Microsoft’s public commitment to slashing 2013 carbon emission levels by 75 percent by the year 2030, despite the U.S. withdrawal from the Paris Agreement;
  • Amazon boosting its minimum wage to $15, more than doubling the U.S. federal minimum wage rate of $7.25; and
  • Procter & Gamble’s investment in product innovation to create less plastic waste.

To help support the belief that SRI can also be profitable, Forbes showed that in the 50-weeks ending November 30, 2018, the S&P index returned 3.6 percent, while the Just 100 companies returned 7.5 percent.

The Just 100 demonstrates that many corporations are focusing on doing the right thing for their workers, the environment, and society as a whole. And, as a win-win, companies engaging in good ESG practices may also provide good investing opportunities for investors.

3 “Portfolio Placebos”, Dec. 26, 2017, p. 100. Forbes Magazine.