Values-Based Investing
Investors are using social values to guide investment choices. Today’s newest options offer
an opportunity to do good, while doing well.

The line that has separated the building of wealth from accomplishing social goals has been one of the most enduring features of capitalism. The industrialists of the Gilded Age amassed fortunes in manufacturing, railroads and banking, and only then did they turn their attention to erecting the museums, symphony halls and philanthropies that bear their names. As the markets grew during the 20th century, socially minded investments were, as Fortune magazine put it, nothing more than “feel good” investments.

For years, they were largely confined to socially responsible investment (SRI) funds that screened out companies deemed inappropriate according to social or ethical guidelines — even if that meant sacrificing the potential for competitive returns. Today, not only are such funds increasingly sophisticated and competitive, but a whole new world of opportunities beyond mutual funds has emerged as well for individuals eager to align their investments with their personal values. This burgeoning global phenomenon demands a much broader and more comprehensive name than SRI: values-based investing.

Get the Flash Player to see this player.

 

 

 

 

 

 

In 2005, American individuals and institutions invested $2.3 trillion — one in every 10 investment dollars — by taking environmental, social and governance factors into account in their investment decisions, according to the Social Investment Forum. That’s a 360% increase from the $639 billion put into “socially responsible” companies in 1995.1 Values-based investing has also gained currency around the world. The 2007 Merrill Lynch/Capgemini World Wealth Report found strong interest in values-based investing from Asia to the Middle East; and in Europe, such investments rose from $381 billion in 2003 to $1.29 trillion in 2005.2

That individuals can choose among hundreds of values-based investments accounts for only part of their popularity, however. Today, investors are far less likely to accept the “conscience penalty” of lower returns that was not unusual for the handful of mutual funds that vetted companies for their socially redeeming practices a decade ago. Values-based investments are now designed to fit seamlessly into portfolios by meeting specific financial objectives, such as protecting assets, seeking growth or hedging against market risk. “Individuals who want to integrate their values into their investing can seek, and expect, a competitive return,” says Tim Smith, chairman of the Social Investment Forum.
PAGE: 1 2 3 4 5 6