Socially responsible, or “green” investing is a growing trend


Mariah Sacoman


For some, the days of protest marches and songs may be over. Today, a new method of voicing beliefs or dissension with the status quo is available via socially responsible investments (SRI). Whether the focus is on advancing environmental causes, building healthy communities or promoting corporate ethics, investors interested in making a difference in the world are spurring interest in SRIs.


Socially Responsible Investments: The Back Story

Socially responsible investing traces its roots to religious concerns, and expanded in scope in the 1970s and 1980s as investors joined other protestors against apartheid by choosing not to invest in companies involved in South Africa.1 From there, the definition of SRI evolved to include the avoidance of “sin stocks”—stocks of companies that derive earnings from gambling, alcohol or tobacco. More recently, the concept has expanded further to include any number of social and environmental issues, as well as a growing concern with “corporate character”—seeking out companies that have commendable records on corporate governance.


Interest in socially responsible investments has surged in the past decade. According to US SIF (The Forum for Sustainable and Responsible Investments), assets in professionally managed SRI funds totaled $569 billion in 2010—up from $12 billion in 1995.2 And the number of funds that utilize environmental, social and governance (ESG) factors into their portfolio construction has risen dramatically.


How to Find Socially Responsible Investments

With more than 250 mutual funds, 25 exchange traded funds and 175 alternative investment vehicles available to US investors (such as hedge funds and private equity funds) that utilize ESG factors in their selection criteria, there are many opportunities for individual investors to find suitable socially responsible funds. Among some of the more popular options:


  • Alternative Energy Funds: These funds hold baskets of securities of corporations that are actively involved in researching or producing alternative energy sources. They search out corporations involved with technologies like solar and wind power, biofuels, hydropower and other sustainable and renewable energy sources.
  • Eco-Friendly Funds: Mutual funds that focus on eco-friendly corporations have a broader range of investment options than more targeted SRI funds. These funds can include companies that strive to improve the environment, produce environmentally friendly products or take steps to minimize their negative impact on the environment.
  • Sustainable Resource Funds: These funds invest in companies that strive to maximize returns while ensuring the survival of natural resources. Examples include sustainable water, which includes everything from water distribution to treatment to consumption, and sustainable climate, which looks at companies that try to delay or moderate global climate change.

One of the ways to find these funds—or to invest in individual stocks or bonds of these companies—is through screening. Screeningis the practice of evaluating investments by defining certain guidelines. Originally, the focus of SRIs was to avoid companies that were engaged in undesirable activities that were harmful to individuals, communities or the environment. More recently, this negative (or exclusionary) screening technique has given way to a positive (or inclusionary) screening approach to invest in companies that make progressive contributions to society via strong environmental practices, making products that are safe and useful and employing policies that respect human rights around the world.

Another way to engage in socially responsible investing is through shareholder activism. Investors seek topositively influence corporate behavior of the companies whose securities they own by prodding management to steer a more responsible social and/or environmental course. These efforts can include initiating conversations with corporate management on issues of concern and by submitting and voting on proxy resolutions. The process of dialogue and filing shareholder resolutions generates investor pressure on company management, often garners media attention and educates the public on social, environmental and labor issues. Such resolutions filed by SRI investors are aimed at improving company policies and practices, encouraging management to exercise good corporate citizenship and promoting long-term shareholder value and financial performance.

A third way is through community investing. Community investing projects are small and local, and work by lending individuals and local groups the capital they need to improve their own communities in a socially positive and environmentally sustainable way. They can focus on affordable housing, small business creation, development of community facilities and the empowerment of women and minorities. You can invest in community investing institutions such as community development banks, credit unions or loan funds. Your dollars will help provide access to capital and basic financial services to low-income communities.


The Performance Question

Proponents of socially responsible investments have always had to combat the notion that SRI underperforms the broader universe of investments. Yet there is a growing body of evidence that suggests otherwise. For instance, the MSCI KLD 400 Social Index (which screens out sin stocks and companies with poor human rights records) shows that since 1990 (the year of its inception), the index posted annualized returns of 9.51 percent versus 9.07 percent for the S&P 500.3


Still, skeptics of sustainable and responsible investing say selecting one or two quality funds from the SRI fund universe is one thing, but building a well-diversified portfolio consisting entirely of socially screened funds is quite another. Even though top-performing SRI funds can now be found in all major asset classes, adequate diversification remains a key consideration.4


Please contact me if you would like to learn more about the possibility of adding a socially responsible component to your portfolio.



1Source: US SIF: The Forum for Sustainable and Responsible Investments, “2010 Report on Socially Responsible Investing Trends in the United States,” 2010.


3Sources: MSCI Inc.; Standard & Poor’s. Data is from April 30, 1990, to September 30, 2012. Indices are unmanaged and not available for direct investment. Past performance does not guarantee future results.

4Diversification does not assure a profit or protect against a loss.




Article by McGraw Hill provided courtesy of Morgan Stanley Financial Advisor Mariah Sacoman, Santa Fe, NM: 505.988.7708,



Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies. Investors should carefully consider the investment objectives and risks as well as charges and expenses of a mutual fund/exchange traded fund before investing. To obtain a prospectus, contact your Financial Advisor or visit the fund company’s website. The prospectus contains this and other information about the mutual fund/exchange traded fund. Read the prospectus carefully before investing. Investments and services offered through Morgan Stanley Smith Barney LLC, member SIPC.


Mariah Saco may only transact business in states where she is registered or excluded or exempted from registration, Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Mariah Sacoman is not registered or excluded or exempt from registration.



Morgan Stanley Financial Advisor engaged GreenFire Times Publishing, LLC to feature this article. The author(s) are not employees of Morgan Stanley Smith Barney LLC (“MSSB”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of MSSB. The information and data in the article or publication has been obtained from sources outside of MSSB and MSSB makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of MSSB. Neither the information provided nor any opinion expressed constitutes a solicitation by MSSB with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.





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