The dawn of the New Year is the perfect time for reflecting, finding fresh perspectives, and dreaming up ideas. What can we change to become healthier and happier? We all have our lists.
Financial security is a major component of personal happiness, and one investing trend that's exploding as we speak is all about "gain without guilt." Those who are making a resolution to make their portfolios healthier and happier by investing in socially responsible stocks are in good company right now.
According to the Forum for Sustainable and Responsible Investment, a.k.a. US SIF, at the beginning of 2014, U.S. assets directed into socially responsible investing, or SRI, increased 76% to $6.57 trillion in just two years' time. From 1995 to 2014, the SRI sphere has increased by 929%, with a compound annual growth rate of 13.1%.
That growth may sound surprising, but it shouldn't be. It's a long overdue shift to good business principles, with companies looking out for their stakeholders and employing common-sense strategies in areas like environmental sustainability. Businesses that operate this way have the best chances to survive, thrive, and generate solid profits for shareholders.
Brighter times ahead
Thankfully, this is 2015, not 2008, when the financial crisis was in full swing. Too-big-to-fail banks' role in the financial crisis illustrated what happens when powerful companies are run with only quarterly profits in mind, spurred on by shortsighted shareholders. BP's (NYSE:BP) Deepwater Horizon disaster in 2010 echoed the drive for profit without sound, safe strategy or contingency plans.
The US SIF data revealed a possible tipping point in surging demand for SRI vehicles, and it may be related to the darker days of corporate America. In 1995 there were only 55 funds centered around socially responsible practices or environmental, social, and governance (ESG) factors. By 2010, the number had spiked to 493, representing $569 billion in assets.
Obviously, what investors want has been changing, and it's a shift toward the light. Granted, the increasing financial clout of females and millennials -- two groups known for their interest in social responsibility and sustainability -- may strongly figure into the growth in the area. However, this may also be a sign that by 2010 and beyond, many people really did learn a lesson from tough, scary times: There is a difference between investing for prosperity and encouraging companies' reckless, profit-obsessed practices.
In 2014 there were 925 ESG funds representing $4.3 trillion, so this trend is still heating up -- as it should. When we choose socially responsible stocks, we can make money and sleep peacefully at night.
Greening up returns
Social responsibility includes everything from screening out weapons manufacturers or tobacco companies to screening in best-in-class, stakeholder-friendly companies. However, environmental sustainability is one of the major subgenres of the SRI universe. There's a ton of risk and opportunity for companies and their shareholders in the environmental area. Sustainability improvements are often good for the planet and bottom lines.
The Carbon Disclosure Project (CDP) recently released data that shows the correlation between tackling climate change and financial performance. The CDP gathers corporate climate change data self-reported by corporations across the globe. Using the data, it works with companies, investors, governments, and policymakers to drive positive change in sustainability, taking on issues like climate change and resource scarcity.
The CDP Climate Performance Leadership Index consists of 187 companies that earned "A" grades for their performance in the area; these companies emerged from a total of 1,971 companies that responded and reported their climate data. The fact that these companies lead in their sustainability initiatives and policies didn't doom the index to negative returns. From October 2010 through September 2014, the index generated a 38% return and beat the Bloomberg World Index, which generated a 34% return over that time frame.
CDP included examples of companies that have managed to make or save money with these responsible practices. For example, Coca Cola HBC cut its emissions by 30,000 metric tons through product design and saved $20 million in the process. General Motors (NYSE:GM) looked at its transportation logistics and avoided 244,000 metric tons of emissions, saving a hefty $287 million. Spain's Abengoa (UNKNOWN:ABGB.DL) has saved $911 million now that it has installed two solar plants.
Increasingly, corporate managements talk about their sustainability plans not only in terms of doing the right thing, but in terms of doing the long-term profitable thing, too. It's a win-win.
No more risky business
For ages, conventional wisdom made people feel as if to be the best investors, they had to leave their emotions and even their ethics at the door, and if they chose socially responsible companies, they faced a big risk of losing money. That couldn't be further from the truth.
The real risk to our lives and wealth is giving our money to shoddy, sometimes even unethical companies with managements who think of nothing but short-term profit, whether we're supporting their businesses by being customers or becoming part-owners by investing in their stocks.
One day, people will probably be incredulous that there was ever a time when investors didn't take environmental, social, and governance factors into account when they bought stocks. Right now, though, we can be among the vanguard that realizes the future is responsibility and direct our own money into the stocks of the most responsible companies we can find. Here's to a bright, prosperous 2015 and beyond.
Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.
Alyce Lomax has no position in any stocks mentioned. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.