In Stormy Economy, Socially Responsible Investments a Welcome Safe Haven

If the stock market were a roller coaster at Six Flags, you can bet the line to ride would be as short as the prospective riders are thrill-seeking.

Amidst a seemingly omnipresent specter of a double-dip recession here in the U.S., recent world market jitters have thrown into high relief the precarious state of the global economy.

But a lesser known – and lesser covered – phenomenon is beginning to resonate above the turmoil: The relative success of what is known as “socially responsible investing” (SRI).

According to the Social Investment Forum (SIF), 65% of the 160 socially responsible mutual funds outperformed their benchmarks in 2009. Meanwhile, a majority of large cap SRI funds – those which deal with companies valued in the billions of dollars – outperformed the S&P 500 over ten years.

What’s more, SRI itself continues to grow every year, moving away from simply screening out specific industries like tobacco and weapons, and towards “positive screening strategies” which target socially and environmentally responsible companies and sectors.

In fact, according to SIF, SRI “now encompasses and estimated $3.07 trillion out of $25.2 trillion in the U.S. investment marketplace today”. To put it another way, nearly 1 out of every 8 dollars under professional investment in the U.S. is involved in some aspect of socially responsible and sustainable investing.

“Companies thinking about, for example, how to better manage pollution, or how to be more energy efficient, tend to be forward-thinking companies focused on the long-term,” notes Mike Smith of the Progressive Asset Management Group (PAM Group). “In short, they tend to have better management and better corporate governance. Better managed companies in turn tend to be more profitable which is reflected in their stock price.”

While the phenomenon might seem new, SRI has played an important role in global economics for centuries. Here in America, the Quaker community has been putting into economic practice their uniquely progressive values since the 17th century. But even up until the 1980s and 90s, the prejudices against SRI tended to follow the same tired, misguided script: “It’s a hippie thing”; “if you invest that way you’ll have to sacrifice returns”; and the like.

Not so, says Mike Smith.

“People are waking up to the fact that none of that is true,” he says. “The more studies that come out reflecting the contrary, the more it becomes clear that these funds are on par with, and in some instances, outperform more traditional investments. You can follow your values with your investments and not have to sacrifice financial return.”

Still, Smith is quick to point out that even SRI is not totally immune to market volatility, touting a common sense approach towards managing a portfolio.

“We still need to use good basic investment strategies, like diversifying a portfolio, setting up a proper asset allocation and looking carefully at risk parameters and timing before investing,” he says.

The diversity of SRI products certainly helps with performance numbers. Far from being limited strictly to stocks, SRI vehicles can include bonds, mutual funds, private equity, just to name a few. According to Smith, these can include vehicles such as “Build America Bonds” – created under the American Recovery and Reinvestment Act of 2009 – as well as community loan funds.

“Most community loan funds serve low-income communities, either domestically or internationally, and it’s interesting to see how the default rate on their loans is usually so low,” says Smith. “It’s great to see how most people in these low-income communities are diligent about paying these loans back and this can make these funds a reliable part of an SRI portfolio.”

Smith is a part of a group of investment advisors who are able to offer a “triple bottom line” investment approach – a “big picture” strategy which cites “people, planet and profits” as its chief focal points.

Founded in 1987 as the first investment firm to specialize in SRI, the PAM Group now serves as the socially responsible division of Financial West Group, providing a full range of socially and environmentally sustainable investment services including portfolio management, private placement opportunities, retirement planning, education funding and more.

Here on the Seacoast, the PAM Group’s Newfields-based branch has taken that ethos to include bolstering the region’s growing green sector. Earlier this year, Smith and partner Hunter Brownlie became the sole investment company to join Green Alliance.

For Smith, joining the organization only helped solidify his and Brownlie’s conviction that theirs was a customer base well-positioned to appreciate PAM Group’s unique, forward-thinking approach.

“People in the Seacoast area tend to be progressive and to have an outlook that’s open to sustainable investing,” says Smith, whose office has even taken to purchasing carbon offset credits for business-related travel. “But even in parts of the region which are traditionally thought of as more conservative, people are beginning to recognize that socially and environmentally sustainable investments can also be fiscally responsible as they help identify hidden risks and liabilities which may have a negative impact on earnings, and in turn, stock performance.”

Global markets may have a ways to go before confidence and growth are fully restored. But for Mike Smith and Socially Responsible Investment firms like the PAM Group, there are still plenty of companies out there heeding both of those clarion calls.

Call it “doing well by doing good.”

Mike Smith can be reached at msmith@fwg.com or 603-418-8662.He is a registered representative offering securities through Financial West Group, member FINRA/SIPC.

For more information on Green Alliance, visit www.greenalliance.biz