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  • Milad Taghehchian, CPA, CFP(R)

Socially Responsible Investing

AIO Financial is a fee-only financial planning firm in Tucson and Phoenix, AZ. They specialize in Socially Responsible Investing. Bill Holliday, a Certified Financial Planner, offered to write for our blog this week. Socially Responsible Investing (SRI) SRI (also known as sustainable, socially conscious, and ethical investing) continues to grow at a faster pace than conventional investment assets. The idea is to invest in-line with your values. SRI provides a way to support organizations and issues that you are concerned about while earning a competitive return. Over $3 trillion of U.S. investments (13%) are in SRI. These investments use at least one of the three SRI strategies:

  1. Screening

  2. Shareholder Advocacy

  3. Community Investments

Some of the main reasons why SRI is more attractive now than in the past, include:

  • There are more socially responsible investments available. There are currently about 925 SRI funds.

  • SRI mutual fund performance has improved. Increased competition and size of these funds has allowed the administrative costs to be lower.

  • There are companies and industries people do or do not want to support and there is more information readily available than ever before.

There is no one strategy to move your portfolio closer to your values as there is no one reason that motivates people to participate in SRI. Screening Screening involves using positive and negative filters to select investments (avoid or include investments). Companies may be excluded or included based on their:

  • Industries – exclude all (like oil) or best of the worst (like BP) or focus on alternative energy

  • Country – avoid if regime has poor human rights record

  • Corporate SR – promoting women, impacts on community, environmental impacts, fair trade products

  • Policies & Practices – Unions, Healthcare, recognize domestic partners

Shareholder Advocacy Shareholder advocacy is exercising your right as a shareholder (through SRI mutual funds or individual stocks) to influence the direction of business. Index and non-SRI funds generally do not vote or vote with management on environmental, governance and social (ESG) issues. Shareholders can:

  • Voting of Proxies - All shareholders may vote on annual meeting agenda items

  • Letters - Letters may be sent any time (all public companies have Investor Relations Depts.)

  • Filing Resolutions - Shareholders may petition companies they own shares in (at least $2k), for annual meeting agendas. Resolutions often pass with less than 30% in favor

  • In-person meetings/dialogues - Letters and resolutions may lead to discussion of issues with company executives

  • Divest – sell your shares

Some of the top ESG shareholder issues are:

  • Political contribution

  • Climate change

  • Equal employment

  • Environmental management and reporting

  • Board diversity

  • Executive pay

Community Investments Provide access to credit, equity, capital, and basic banking products that low-income communities who would otherwise lack. Participation in community investment includes:

  • Investing in micro-credit organizations through notes

  • Using member owned credit unions or community banks for your banking services

How to Construct an SRI Portfolio Work with your financial advisor to determine your risk tolerance and investment objective. Develop an investment policy. Depending on your situation and SRI desires you can develop an SRI portfolio by using:

  • Individual stocks

  • SRI mutual funds

  • SRI exchange traded funds (ETFs)

  • Community development loan fund

  • Managed accounts (from asset management firms)

  • Or a combination

If you’re an Arizona resident in the Tucson or Phoenix area, we recommend you visit a fellow fee-only financial planning firm. Check out or call AIO Financial at 520-325-0769.

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