Are you willing to put your money where your mouth is?
Increasingly, Americans are doing just that when it comes to investing in so-called socially responsible companies. But the trend is not as clear-cut in North Texas.
Socially responsible investing, or SRI, shot up 13 percent during the Great Recession, according to the US SIF, an association for the SRI community formerly known as the Social Investment Forum.
More than $3 trillion, or 1 in 8 investment dollars, is under management using the strategy, which seeks to combine returns with social good. The association count includes institutional assets that meet environmental, social or governance criteria as well as bank or other investment assets involved in community investing.
Never miss a local story.
"This is not just a trend, but clear evidence of a growing SRI investment discipline," said Alya Kayal, director of policy and programs for US SIF.
But local financial planners are not seeing much interest in SRI among their clients.
"Most people don't know what their dollars are invested in," said Dennis Carpenter, a certified financial planner and president of International Wealth Management in Grapevine. "Most pastors don't even know."
Steve Blankenship, a principal at Heritage Financial Planning in Grapevine, said in the past five years he's had "maybe one" local client ask him about socially responsible investments.
"There's not a tremendous demand for it in DFW unless you bring it up," Blankenship said. "But I have clients in California, Colorado and Austin who want it."
The tepid interest by North Texans does not mean that brokerage houses aren't seeing a growing trend. Today, most offer SRI mutual funds or separate asset accounts, including Fidelity, Schwab, Vanguard, Merrill Lynch and Morgan Stanley Smith Barney, Kayal said. In all, SRI mutual funds have increased from 55 with $72 billion in assets in 1995 to 250 with $316 billion in assets by 2010, she said.
Dave Corbin, a Fort Worth-based asset manager, said one-quarter of the $166 million in his portfolio is in SRI securities his firm has researched and screened.
The biggest growth in this investment strategy has been in plans for government employees and religious and university endowments, he said.
Kayal said 25 states and a number of cities now offer an SRI option through their deferred compensation plans. Many global companies, including Hewlett-Packard, also offer SRI options to their employee retirement plans.
Defining SRI can be tricky, however, Corbin said.
"We're one of the few firms in the country with clients who are very progressive and very conservative in terms of ideology and political affiliation," he said. "SRI in one sense is like beauty. It's in the eyes of the beholder."
Adding more complexity is that companies may be stronger in one area of social responsibility, but rank worse in another. Wal-Mart, for example, has made big strides in its environmental record but still faces multiple lawsuits for treatment of its workers, and it is one of the largest sellers of guns in the country.
Corbin said his firm, which only takes clients with $1 million or more in assets, ranks 10,000 companies in eight categories of social responsibility. Screens avoid companies that manufacture or sell gaming machines, alcohol, tobacco or weapons and utilities that use nuclear power. Corbin also researches and screens out companies that do business in countries with human rights violations, use animal testing on their products or have bad records on employee relations, the environment or citizenship.
Once screened, Corbin applies a grading scale for each company from 1 to 10, ranking companies from excellent in their field to below industry standards.
"We screen for social characterization first then apply financial methodology," he said. "Most others do the opposite."
The big question for SRI is what kind of returns it generates.
Corbin said SRI has paid off for his fund.
"We have found SRI has a recognized performance because companies that typically meet SRI are seen as being higher quality," he said. "How they are run is how they treat their people, for example."
A recent article in CFA Digest looked at more than 3,000 companies scored for social responsibility factors and found that the screen for corporate governance has the highest statistical significance for determining returns.
"Strength in corporate governance increases returns, whereas weakness decreases returns," the article said.
Overall, however, the article said that irresponsible companies tend to outperform those deemed socially responsible. The article surmised that investors are often more interested in SRI for reasons other than higher returns and advised investors to be "extremely careful" in how they choose their SRI funds.
Carpenter said clients who use SRI are not always looking for the highest returns.
"For these shareholders, it's almost like they're tithing. They are so committed to that cause," he said.
Blankenship said by narrowing your field of options through SRI, you run the risk of not being able to balance your portfolio adequately. Also, many of the SRI mutual funds are new, so they lack historical data on performance.
This can be seen at the performance chart on the US SIF website. Of the 150 SRI mutual funds listed, 84 did not have a 10-year average return listed because they were not old enough to have that data.
Still, despite its relative infancy and lack of strong history, SRI is only going to become more prevalent in the marketplace, Blankenship said.
"To be competitive, any mutual fund in existence is going to have to have an SRI option," he said. "If they don't, they run the risk of getting behind the trend."
If employees want to invest using an SRI strategy for their 401(k), they can get it through the brokerage link option if their employer doesn't offer an SRI mutual fund or exchange-traded fund, Blankenship said.
"It's a work-around for someone to get access to those types of funds," he said.
Blankenship also advises to be sure to do your homework before you sign up to a specific SRI vehicle.
"Just because it ranks highly doesn't mean that their definition matches your definition of SRI," he said. "Check their methodology."
Teresa McUsic's column appears Saturdays. TMcUsic@SavvyConsumer.net