Socially Responsible Investing:  Investing in the Next Generation

Socially Responsible Investing
Socially Responsible Investing

Socially Responsible Investing:  Investing in the Next Generation

One of the major trends in investing today is socially responsible investing. While socially responsible investing has been around for decades, new data shows that it has become even more popular than ever. Results from the U.S. Trust Insights on Wealth and Worth’s annual survey in 2016 indicated that among high-net-worth individuals, 93% of millennials, 88% of GenX and 51% of baby boomers say they are interested in environmental, social and governance (ESG) investing.[1]

However, today’s socially conscious investing is very different from that of years past where investors simply excluded “sin stocks” (companies that produce or sell addictive substances like alcohol, gambling, and tobacco) from their portfolio. Today’s responsible investing is more about investing to achieve both a positive impact on society as well as favorable investment results.

Can  a Focus on ESG Deliver Better Investment Returns?

There has been a great deal of skepticism around sustainable investing which stems from the difficulties some socially responsible investments have had when it comes to delivering strong financial performance. Nevertheless, not all ESG investing means having to sacrifice investment returns. Research suggests that companies with high scores for their ESG commitments typically have better management teams, higher growth expectations, and reduced capital expenses. This typically translates into better financial results for investors.[2]

Another study conducted by researchers at the University of Oxford concluded that companies with robust sustainability practices demonstrate better operations performance, and the beneficial impact of these practices was found to be stable over time. The study also showed a positive correlation between diligent sustainability practices and corporate financial performance.[3]

The study found that:

1.       90% of their studies on the cost of capital showed that sound sustainability standards lowered the cost of capital of companies.

2.       88% of their research showed that solid ESG practices resulted in the improved operational performance of firms, which ultimately translates into better cash flows.

3.       80% of their studies showed that stock price performance of companies is positively influenced by good sustainability practices.

The Opportunity

For most, the greatest opportunity stemming from ESG investing is the ability to align personal values with financial goals.  However, ESG investors may also benefit from enhanced returns and reduced investment risks because of a firm’s focus on ESG factors. For questions or to learn more about how socially responsible investing might fit into your overall investment strategy, contact Robert Freitas with Stratos Wealth Advisors at (803) 393-2441.

[1] U.S. Trust Insights on Wealth and Worth annual survey, 2016.
[2] George Serafeim, “The Role of the Corporation in Society:  Implications for Investors,” September 2015.
[3] “From the Stockholder to the Stakeholder:  How Sustainability Can Drive Financial Outperformance,” University of Oxford and Arabesque Partners, September 2014.