Owning Your Values: Socially Responsible Investing

March 12, 2018 · Written By Thomas Alvaré, CPA/PFS

In the days before mutual funds and index funds were commonly available, investors were more in tune with the names of companies they owned in their portfolios. Aside from believing in the investment merits of each company, stock or bond investors often chose companies that produced familiar products, or those with interesting prospects for success.

In the 21st century, when investing has become far more efficient and we can build low cost, well-diversified portfolios using mutual funds and index funds, JFS clients now own or lend to hundreds of different companies. With that, it’s become less common to specifically identify each. Sure, we can easily obtain a list, but we generally focus on the portfolio as a whole vs. the underlying entities.

In these days of increasing transparency, many clients have asked whether they can avoid investing in certain companies (or industry segments) due to moral, religious, ethical or environmental beliefs. Our religious institutional clients have historically set Socially Responsible Investment criteria that reflect their religious convictions. So, it is possible to build efficient portfolios today that exclude certain kinds of companies.

We believe any of our clients should have a choice to invest their money in a Socially Responsible Investment (SRI) program. Our investment committee has approved SRI funds that are low cost and well-diversified with a track record comparable to their non-SRI peers. Dimensional Fund Advisors’ SRI funds are available through JFS and can be used to build your portfolio, placing limitations on the types of companies included based on defined criteria explained below.1 If you would like to own investments aligned with your values, or just own companies that meet Dimensional’s SRI criteria, please consult with your advisor.

1 The Portfolio’s social issue screens are designed to identify & exclude companies that: (1) earn at least 20% of their total annual revenue through the production and/or sale of conventional or nuclear weapons, their weapon systems, or critical components of these products, or the provision of weapon systems support and service; (2) are engaged in certain for profit business activities in or with the Republic of the Sudan; (3) earn at least 15% of their total annual revenue through the production and/or sale of tobacco or alcohol products, or key products or raw materials necessary for their production; (4) earn at least 20% of their total annual revenue from certain gambling activities, the production of goods used exclusively for gambling, or the provision of certain services in casinos that are fundamental to gambling operations; (5) directly participate in abortions, or develop or manufacture abortive agents or contraceptives; (6) earn at least 15% of their total annual revenue from the rental, sale, distribution or production of pornographic materials, or the ownership or operation of adult entertainment establishments; (7) have had major recent controversies relating to child labor infractions in the U.S. or abroad; (8) are involved in the production or manufacture of landmines, cluster munitions, or the essential components of these products; and/or (9) are involved in stem cell research.