What Does Socially Responsible Investing Mean for Your Practice?

Sonia Kowal, Director of Socially Responsible Investing at Zevin Asset Management LLC, indirectly owes her job to a trip she made years ago to Siberia. She was sent by a former employer to research a mining company, and what she discovered horrified her.  “It snowed black,” she explains. “The trees were dead and stunted. There were no safety precautions whatsoever for the workers.”


When she talked to management, her concerns about the company’s effects on the environment and the workers’ health were ignored. “I felt so disappointed and so responsible for what was going on there,” says Ms. Kowal, who has since devoted her career to a rapidly growing field broadly known as Socially Responsible Investing (SRI).

Socially Responsible Investment managers screen companies based on environmental, social and governance (ESG) practices such as whether they provide safe working conditions, act responsibly and make products that contribute to society.  “It’s about the relationship between your investments and the real world and maximizing the social outcomes associated with those investments,” says David Wood, Director of the Initiative for Responsible Investment at Harvard’s Hauser Institute for Civil Society.

The Boston Foundation offers four SRI mutual funds as an investment option for its donors in addition to its professionally managed Fund for the 21st Century. “Our donors are people who have a lot of interest in making the world a better place,” says Chief Investment Officer George Wilson, “and this is one of the levers they’re trying to use.”

“We see a great deal of interest in this investment option from donors and potential donors, especially younger people,” says Kate R. Guedj, the Boston Foundation’s Vice President for Development and Donor Services, “And we want people to know that if socially responsible investing is important to their philanthropy, they can do it here.”

No need to give up performance

A common misconception about SRIs, experts say, is that they don’t make money. “There’s a body of research out there that suggests you don’t have to give up performance when you invest in SRIs,” says Mr. Wood, who is a former board member of US SIF, a membership association for individuals, firms and organizations engaged in sustainable and responsible investing.  “The managers need to know you can do it without sacrificing performance. The asset owners need to know there’s this opportunity to do things differently that have outcomes that might better suit their ethical commitment.”

Ms. Kowal, who is a member of the Boston Foundation’s Professional Advisors Network, says, “I don’t think most advisors are aware of the fact that there’s very clear evidence that sustainable investors do not pay more to align their investments with their values. I think that misperception can hold back their relationships with their clients.”

She says some advisors are reluctant to talk about SRIs for the same reason they avoid asking their clients about philanthropy: “You’re getting into clients’ values.” Yet, she points out, not becoming educated on these topics means risking losing clients to advisors who are knowledgeable about responsible companies and funds, know something about shareholder engagement and are familiar with community investing.”

2012 study by the US SIF Foundation found that $3.7 trillion – or one out of every nine dollars under professional management in the United States – is invested according to sustainable and responsible investing strategies. The report found that the “SRI universe” grew 486 percent between 1995 and 2012, while assets under professional management grew 376 percent. Some of this was due to legislative mandates—state pension funds, for example, not investing in Sudan—and some was driven by high-profile issues such as climate change, according to Lisa Woll, CEO of US SIF.

Already this year, a group of private foundations with combined assets of more than $1.5 billion declared they would be divesting from fossil fuels and investing in climate solutions, according to a US SIF Foundation reportreleased last week. And investors in the millennial generation, who were born between about 1980 and 2000, are demanding investments that consider environmental, social and governance issues.

Charlie Walsh, a principal at Federal Street Advisors and a former member of the Boston Foundation’s Professional Advisors Committee, says more than 30 percent of his firm’s clients are invested in SRIs. Large family foundations in particular have been directing much – if not all – of their assets into SRIs so that “their money is working in a way that’s aligned with their values,” he notes.

Mr. Walsh says he always makes a point of bringing up socially responsible investing when he meets with potential clients or the adult children of existing clients. “Sometimes they’re not familiar with it, and once it’s explained to them they love it,” he says. “Or they’ll say ‘No, it’s not important to us.’ But you have to educate people. I think advisors are often hesitant because they don’t feel comfortable enough to talk about it or they are concerned about how clients may react to the idea. But our clients who have embraced the idea of socially responsible investing are glad they have done so. One client said, ‘I can sleep at night knowing that my assets are invested in a way I feel good about.’”