John McNicholas heads up our sister business, Ethical Financial and is one of Ireland’s foremost thinkers and leaders in the Socially Responsible Investing (SRI) space. John was recounting a conversation he had with an important client (we’ll call her Alice), who has a particular interest in investing her money both wisely and ethically.
Alice’s concern was around the price she potentially might pay for her principles. She challenged John that if she invested according to her social principles, would she suffer higher costs and a lower return which could prevent her from achieving her financial planning goals?
John and Alice then had an in-depth conversation around the “cost” of SRI.
The good news is that research tells us that SRI typically provides at least as good a return as most other kinds of investing over the long term.
So, although SRI investing is sometimes presented as having to choose between having an acceptable investment return or investing according to your principles, it would seem that you can have both.
So, where's the proof and the research?
In a 2005 working paper at the Wharton Business School titled “Investing in Socially Responsible Mutual Funds”, Geczy, Stambauh and Levin concluded that due to a lack of diversification, investing in SRI mutual funds costs investors only a few basis points a month.
The second study was completed in 2008 by three professors from Santa Clara University (Hamilton, Ho and Statman). The authors produced a working paper titled “The Wages of Social Responsibility". In this research they explained,
"We find that stocks of companies with high ratings on social responsibility characteristics outperformed companies with low ratings. However, we also find that "shunned" stocks (that is alcohol, tobacco, gambling, firearms, military, and nuclear") outperformed those in other industries. The two effects balance out, such as socially responsible indexes have returns approximately equal to those of conventional indexes."
This is just one of the issues to consider when thinking about SRI. There’s a lot more to think about to successfully invest in line with your principles. Nothing will beat sitting down with someone who is fully versed in this space. We mentioned earlier that we’re fortunate at Global Wealth, along with our sister company Ethical Financial to have deep experience and expertise in helping people to invest in line with their own preferences and convictions.
Would you like to find out more about how Global Wealth and Ethical Financial assist and guide individuals to investing on their terms, without it costing the earth?