Investing in 2013 may greatly diverge from how most people viewed investing before the financial crisis. There's more and more compelling evidence about the myriad upsides of integrating socially responsible investing, or SRI, in its many names and forms into investing. It looks like 2013 could be the year investing with a conscience gains long-overdue legitimacy as a solid, common-sense philosophy.
Last week, First Affirmative Financial Network released a survey predicting that 2013 will be the year of impact investing. The data comes ahead of The SRI Conference, formerly known as SRI in the Rockies, coming up in early October.
Impact investing's growing momentum
The survey examined perspectives of current and past attendees of The SRI Conference, the largest annual gathering of SRI industry professionals in the U.S. Attendees include investment professionals in the SRI industry such as licensed investment professionals, mutual fund companies, asset managers, community development financial institutions, social research and proxy voting organizations, faith-based institutional investors, and social change nonprofits.
According to 35% of the 200-plus individuals surveyed, "impact investing" will be the major growth area in the SRI space next year. Impact investing often includes a community-oriented investing approach, although it can include any kind of investment that makes a positive social impact.
Meanwhile, 29% of the respondents believe "screened investing/ESG integration" will experience the largest growth next year. This is a broad lens that can include green investing, sustainable investing, faith-based investing, activist investing, or simply screening out investing in companies that do the most damage in their industries.
No longer so niche
Here's more proof that the general SRI investment philosophy is gaining ground: Many of the big names on Wall Street are increasingly interested in the space.
Take the increasing buzz surrounding social impact bonds, which raise money from investors to fund social programs. They only pay a return if the initiatives achieve stated goals.
Wall Street giant Goldman Sachs (NYSE: GS ) is paving the way with plans to pour $9.6 million into a social impact bond designed to decrease the recidivism rates of Rikers Island prison inmates. According to Wharton, unlike most social impact bonds, Goldman's is protected from losing the whole investment; New York City Mayor Michael Bloomberg's own foundation apparently will repay the money if the program doesn't work out.
Still, experts at Wharton still underline the importance that a huge commercial investor like Goldman has signed on for this type of new, socially linked bond. It certainly pulls the idea out of relative obscurity.
On a broader level, Morgan Stanley (NYSE: MS ) launched its own Investing with Impact Platform several months ago, allowing clients to attain their financial goals while staying true to their personal values. In the press release, Head of Wealth Management Andy Saperstein said, "We hear frequently from clients and Financial Advisors about the importance of integrating sustainability themes into their investment portfolios." The product opens such philosophical investing to investors large and small.
Meanwhile, Deutsche Bank's (NYSE: DB ) DB Climate Change Advisors reported on the area's performance in June. Mark Fulton, Global Head of the Climate Change Investment Research unit, wrote, "We believe that ESG analysis should be built into the investment processes of every serious investor, and into the corporate strategy of every company that cares about shareholder value."
The group looked at 100 academic studies, 56 research papers, and a handful of literature reviews and meta-studies. DB Climate Change Advisors' examination revealed several eye-opening findings, several of which should be extremely persuasive to all investors:
- 100% of the academic studies showed the highest-rated companies for ESG and corporate social responsibility, or CSR, factors boasted a lower cost of capital for debt and equity.
- 89% of the studies indicated that companies with the highest ESG elements showed market outperformance, and 85% indicated accounting-based outperformance.
Many choices for choosing good
The good news is that there are obviously many increasing avenues through which one can keep a clean conscience in investing. In addition to increasing products from Wall Street's big names, plenty of SRI mutual funds already exist, and some have been around for decades. You can check out recent performance for tons of such sustainable and responsible investing products at U.S. SIF's site here.
Meanwhile, individual investors can identify ethical companies to invest in themselves simply by doing their research and enjoying the fascination and challenge in the process.
For example, I've purchased more than 20 stocks I believe fit into the SRI universe for the real-money portfolio I'm managing for Fool.com. The most successful holdings so far are Whole Foods Market (Nasdaq: WFM ) , up 64%, and Costco (Nasdaq: COST ) , up 48%; both are among my favorite picks when I think of stocks to hold for the very, very long term. I've got some losers, too, but the total return is currently 29%, beating the S&P by 2 percentage points.
For decades, many investors have been led to believe that to invest well and make money, they simply had to leave their consciences behind. That's been a terrible influence on the marketplace, and it's not even valid. Whether you prefer impact investing, green investing, SRI, or any of the other terms, there are more reasons than ever to delve into positive investing in 2013.
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Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.