On September 16, 2021, Sand Hill CIO Brenda Vingiello, CFA joined the CNBC Halftime Report panel once again and discussed what positive catalysts investors canread more
Primer on Socially Responsible Investing
SRI, ESG, and green investing are all variations on the broad theme of aligning investments with one’s values. The concept is not new, but it has evolved significantly over the years. My own involvement with socially responsible investing started fifteen years ago. At the time, if a client expressed a desire to address a social issue such as green energy through their portfolio, we would incorporate a single mutual fund that excluded oil. There simply weren’t a lot of other options. That has all changed and now the universe of good investments has expanded so much that it’s possible to create a dedicated diversified portfolio that contains most of the broad asset classes we believe are important to own with the same characteristics as a traditional portfolio.
The earliest socially responsible investments (SRI) had negative screens, meaning they simply excluded companies with negative social effects that investors wanted to avoid from tobacco, a poor environmental record, alcohol, fast food, pornography, and weapons, to name a few. With these negative screens, the early mutual funds excluded entire industries which could result in large variations from their benchmarks. These early funds were also prohibitively expensive.
The industry has since evolved in a number of ways since those early days. Fund research is more readily available, especially now that an increasing number of companies are voluntarily disclosing some sustainability metrics. Fund costs have come down, and there are simply more funds to choose from. Importantly, instead of just excluding companies that don’t meet a strict set of social criteria rules, many funds now reward companies that are making a positive impact.
The term ESG, now widely used, refers to Environmental, Social, Governance. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how a company manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
Do socially responsible funds outperform the market?
Anyone can choose a time period to support their underlying thesis on performance, i.e. there are periods where socially responsible funds outperformed relative to more mainstream funds but other periods where they underperformed. The main driver for the use of SRI funds should be philosophical and values-based, not because of performance expectations; however, today’s funds strive to provide returns in the ballpark of their respective benchmarks at a reasonable cost.
How granular can I get with the issues most important to me?
There are several good broadly defined mutual funds to choose from that allow a typical investor to meet most of their ESG goals. At Sand Hill, one vehicle for ESG investing that we offer is the ability for clients to create the equivalent of a personal equity mutual fund through a subadvisor relationship we have. This account is managed in the context of your larger Sand Hill portfolio and allows you to customize your own fund from a menu of ESG choices. The minimum per account at present is $1M.
Portfolio size, however, isn’t a limiting factor for those clients interested in ESG investing. Sand Hill also utilizes several ESG mutual funds for exposure to the same broad asset classes that we include in a typical diversified portfolio with modest size minimums. Some categories, such as alternative investments, are more challenging to fill, but our goals remain the same for all clients: create a diversified, low cost, tax-efficient portfolio that supports long-term goals.
Is Socially Responsible Investing right for me?
We want to accommodate our clients’ requests for socially responsible portfolios within the parameters listed above (diversified funds and portfolio, low costs, fund goals aligned with client goals). However, ESG is not something we will recommend for all clients. While it can be a great way to put your money where your mouth is, there are just as many instances where allowing the portfolio to perform optimally with no constraints and then writing a check to charity will achieve the same goal in a much simpler manner. If this area is of interest to you, we encourage you to reach out to your Wealth Manager to have a more personalized discussion about your investment portfolio.
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Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.