Many investors today are interested in aligning their investments with their personal beliefs and values. It’s the primary reason why socially responsible or ESG (Environmental, Social, Governance) investing has been one of the most popular and quickly growing investment trends in the last ten years.

But what exactly is socially responsible or ESG investing? Wikipedia describes socially responsible investing (SRI) as an “investment strategy that seeks to consider both financial return and social good to bring about a social change.” The Forum for Sustainable and Responsible Investment, a go-to source for the SRI industry, states that “sustainable, responsible and impact investing is an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact.”

In short, SRI or ESG (the two acronyms are generally synonymous) investing combines two objectives: 1) investing to advance social good and change, and 2) investing that seeks to generate a competitive return. And it’s very important to emphasize that the two objectives are not mutually exclusive – one can potentially achieve both! There was a time when many investors just assumed SRI investing came with an adverse tradeoff in returns, that to invest sustainably or responsibly involved a necessary sacrifice in performance. Fortunately, over the last 20+ years many studies have shown that this assumption is false.

Just how popular is SRI or ESG investing? It’s estimated that in 2016 U.S. asset managers were applying ESG criteria to approximately $8.7 trillion, a nearly 33% increase from the asset total in 2014. The trend is clear, a growing number of people want their investment dollars to more closely represent what they believe and value in their lives. By choosing to invest in certain companies or areas while avoiding or excluding others, the allocation of funds can be used to strongly persuade and influence the behavior of corporate managements. And as SRI / ESG investing has increased in popularity, so too has its clout, with an expanding number of CEOs realizing it’s in their best interest to support and implement socially responsible practices.

For someone desiring an SRI / ESG portfolio, the investment choices available today far outnumber anything offered even just five years ago. Whereas the 1980s and 1990s had just a handful of SRI fund offerings (the ESG acronym was not used until the late 2000s), today an investor can pick from hundreds if not thousands of SRI / ESG mutual funds and exchange-traded funds (ETFs). Most equity asset classes are covered, with SRI / ESG fund offerings in all U.S. capitalization sizes (large-, mid-, and small-cap) as well as in non-U.S. equities, both developed and emerging markets. For fixed-income securities, the diversity of funds is not quite as robust as it is for equities, but many fund platforms today offer a fairly extensive selection of socially responsible bond funds.

We have created SRI / ESG model portfolios for all client risk tolerance profiles. If you are interested in pursuing the establishment of SRI / ESG portfolios or if you have any questions, please call us at 434-971-5917.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing in mutual funds involves risk, including possible loss of principal.
An investment in Exchange Traded Funds (ETF), structured as a mutual fund or unit investment trust, involves the risk of losing money and should be considered as part of an overall program, not a complete investment program. An investment in ETFs involves additional risks such as not diversified, price volatility, competitive industry pressure, international political and economic developments, possible trading halts, and index tracking errors.
Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
No strategy assures success or protects against loss.