Save the Planet While Saving for Retirement? Options for Eco-Conscious Investing

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April, 2022

Presented by James Zahansky, AWMA® 
Principal/Managing Partner, Chief Goal Strategist

It doesn’t have to be Earth Day for there to be focus on the environment – environmental impacts and concerns like global warming are a major point of concern for many these days. There are many ways that each of us can make a positive impact in protecting and preserving the environment. One way that some people choose to act is through their investment choices, by choosing to invest in companies shown to be environmentally responsible.

There are actually two common values-based standards by which to make investment decisions: Socially Responsible Investing (SRI) and Environmental, Social and Governance (ESG) investing. Both offer a framework to invest in companies that are eco-friendly or adhere to other types of socially conscious values and responsibilities.

 


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What is Socially Responsible Investing (SRI)?

Socially responsible investing is an investing strategy in which investors choose their portfolio based on a company’s demonstrated social responsibility. SRI is also known as values-based investing, sustainable investing or ethical investing. As the world continues to change, many investors are seeking to create a more sustainable and ethical portfolio, and SRI is a strategy to do just that. 

The exact definition of SRI can vary from individual to individual because everyone has a slightly different definition of values-based investing. For example, one investor might be focused on investing in minority-owned businesses or businesses that are actively working to reduce their carbon footprint, while other investors are focused on investing in companies that value their employees and support human rights and fair labor practices.

Some common SRI screens include:

  • Alcohol, tobacco and other addictive substances
  • Gambling
  • Production of weapons and defense tools
  • Conflict/war affiliations
  • Human rights and labor violations
  • Environmental damage
     

What is Environmental, Social and Governance (ESG) Investing?

Like SRI, Environmental, Social and Governance (ESG) investing is a strategy that allows investors to build a more ethical portfolio. Unlike SRI, however, ESG is clearly defined in what it includes, and these criteria are directly tied to a company’s performance rather than personal values. Environmental factors refer to how well the company conserves resources, social factors refer to how the company treats individuals both inside and outside the company and governance factors refer to how the company is run.

Here are some factors to consider for each category:

  • Environmental: carbon emissions, air and water pollution, water use, fossil fuel/green energy use, and deforestation
  • Social: employee diversity; customer satisfaction; employee protection, sexual harassment and protected class policies, fair labor practices, and human rights
  • Governance: board member diversity, lawsuits, lobbying, executive salaries, conflicts of interest, and shareholder rights

Some investments have an ESG score, which determines how well they adhere to the above guidelines. While SRI has some flexibility depending on the investor, ESG guidelines are clearly outlined for companies to follow.

 

What are the Differences between SRI and ESG Investing?

As you can see, ESG criteria are a little more specific than general SRI investing, while SRI investing depends on the individual investor. SRI may use specific ESG guidelines, but it can also go beyond ESG. Additionally, an SRI portfolio can be specifically tailored to your preferences.

For example, a fund may be screened for particular ESG criteria because it excludes the stocks of fossil fuel companies, but the fund may also include companies that some SRI investors may not choose to add to their portfolios. ESG screenings merely focus on the above categories, while SRI investments can be as broad and divers as the investors supporting them.

In today’s investing world, there’s no reason why you have to sacrifice performance for your social conscience, or vice versa. With ESG and SRI investing, you can choose to invest in companies that align with your personal values.

We partner with our clients to create a portfolio that is as individual as they are, both in terms of their own financial and life goals as well as the strategy we create to help them get there. We do this through our strategic Plan Well, Invest Well, Live Well process, which is custom tailored to your individual needs, goals and desires. If you’re interested in learning more about how we can help you to create a financial strategy that will help you – and others – to Live Well, contact us for a no-obligation consultation.

 

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  Presented by Principal/Managing Partner James Zahansky, AWMA®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. 697 Pomfret Street, Pomfret Center, CT 06259, 860.928.2341. http://www.whzwealth.com These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your financial advisor. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. Investments are subject to risk, including the loss of principal. Environmental, social, and governance (ESG) and Sustainable, responsible, impact investing (SRI) criteria are a set of non-financial principles and standards used to evaluate potential investments. The incorporation of ESG/SRI principles provides a qualitative assessment that can factor heavily into the security selection process. The investment’s socially responsible focus may limit the investment options available to the investor. Past performance is no guarantee of future results.  

 

 

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