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Can our investments do well and do good in the world?

Updated: Dec 8, 2023

It's a popular concept, making a difference in the world with your investments, but before considering investing from a social perspective, let's set some context by looking at its history. Investing in companies that align with a person's social views and values is not new.

Socially Responsible Investing can be traced back to Judaism in 1500 BC, and has been adopted in some form or another over the years since then by Islam, the Quakers, and Methodists. The Methodists built the foundation for the rise of SRI (Socially Responsible Investing) in the mid-1900s. SRI was defined as avoiding “sin” stocks. These included alcohol, gambling, tobacco, defense contractors, etc. In the 1980s, some in this community added oil, mining, and nuclear energy to their list of companies not to invest in.

So how is this different from Environmental, Social, and Governance, or ESG investing, which is popular today? Instead of listing companies not to invest in as SRI does, ESG lists companies to invest in based on their sustainability and ethical impact. These companies are scored based on four distinct areas: human, social, economic, and environmental – known as the four pillars of sustainability.

As a result, the question being asked these days is whether investors should use SRI or ESG criteria to make investment decisions. In my opinion, the answer is an emphatic NO! It adds complexity to the investment process and may make good companies a less desirable investment. A public company's primary job is to grow shareholder value, and although SRI or ESG might be part of a company's story to grow shareholder value, it is likely just that...a story.

For the most part, a publicly traded company has three primary constituents—shareholders, customers, and employees. And as you likely know, this is a very difficult balance; it takes a competent leadership team to implement strategies with all three in mind. Most strategies implemented will likely help one of the three while putting stress on the other. For example, increasing margins might be good for shareholders, but it might mean employee layoffs, higher costs, and less service to the customer.

In my opinion, adding SRI, ESG, or other social investing criteria to the mix as the fourth constituent not only adds some stress to the other three constituents I just mentioned, it divides them amongst themselves. Using SRI as one example, some people in this group do not want any form of gambling but are okay with fossil fuels, while others do not want either. Again, this is one of the hundreds of possible examples, and adding social criteria will likely divide employees, investors, and customers.

Companies should still be good community partners, socially responsible, and environmentally conscious, which is an important part of running a successful company over time. These points and others are part of building and growing a successful organization. And if the leadership team is focused on serving shareholders, clients, and employees while paying attention to the social aspects, as an example, it will show up in the financial metrics.

It is also important to remember that RSI or ESG ratings are not accounting metrics, and should not be evaluated with the same validity as a GAPP metric. Both RSI and ESG are forms of religious metrics. One is based on Biblical Principles, while the other is on SJW (Social Justice Warrior) Principles.

When clients ask me about investing based on a social impact, I suggest they invest based on the premise that it is a good investment and fits well in their portfolio, helping them reach their financial goals. And then, if they want to help with a religious or social cause, donate money to it. That is much easier and straightforward, and will likely have a greater impact.

DISCLOSURE - All written content on this article is for information purposes only. We utilized ChatGPT and other sources for this article. Opinions expressed herein are solely those of Core Wealth Consultants. Material presented is believed to be from reliable sources, however, we make no representations as to its accuracy or completeness. Core Wealth Consultants, LLC a Registered Investment Advisor in the States of Florida, Indiana and Michigan. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Diversification and asset allocation does not assure or guarantee better performance and cannot eliminate the risk of investment loss.

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