Investing With a Social Conscience

Hartford Business Journal Ask the Expert Feature with Megan Trask, CFP®

As more and more social and political issues take center stage, people are taking a stand in support of the causes most meaningful to them. This heightened social climate provides a unique opportunity for investors to support the causes they align with through Socially Responsible Investing.

To learn more, we sat down with Megan Trask, CFP®, Managing Advisor & Director of Investment Committee at Connecticut Wealth Management, to discuss Socially Responsible Investing.

Q: For people who might not be familiar with it, what is Socially Responsible Investing?

Socially Responsible Investing (SRI) is a fairly broad term that describes an investment style that considers environmental, social, and governance issues and data points to make investment decisions. The extent to which these data points are used can vary widely and depends on the investor. For some, it means aligning their portfolio to match their own values, and for others, it may be broader or determined by another party.

Q: What are the different types of Socially Responsible Investing?

The SRI movement stems from exclusionary screening—religious groups or activist groups wanting to divest from tobacco, alcohol, and gambling. There are other specific styles such as active ownership where investors use their shares to engage and influence a company’s behavior, such as demanding gender pay equality. Impact investing is another style in which an investor wants clear and measurable data points that demonstrate the impact an investment makes. Thematic investing is another area gaining popularity where investors identify a theme important to them such as racial equity or reducing carbon emissions and allocate capital toward investments that focus solely on those areas.

Q: How do you know which type of Socially Responsible Investing is the right for you? And who decides what is a “good” or worthy cause?

It is more about determining what is right for each individual investor within the context of their financial plan, personal goals, and values. This first involves understanding what type of investment return one needs. After investors have that clarity, they can begin to uncover values, preferences, and goals to help build an aligned portfolio. And they can decide for themselves what a worthy cause is—either with the help of a professional to ensure their investments remain properly diversified, or they can rely on a fund manager with a proven track record and transparent criteria to make those determinations. As this movement gains popularity, it will become more important to sift through marketing gimmicks and find authentic managers.

Q: To Socially Invest, is it necessary to make deals you might not otherwise choose to make? Or sacrifice returns in support of the cause?

We do not believe an investor needs to sacrifice returns to build a socially responsible portfolio if fundamental investment analysis is also taken into consideration. However, we do believe that proper diversification is essential to building a sustainable portfolio. For example, if an investor’s mandates are too narrow, that might result in too much concentration in a particular industry, sector, or geographic region. We would likely recommend further exploration and possibly compromise.

Q: How do you know which type of Socially Responsible Investing is the right for you? And who decides what is a “good” or worthy cause?

Both. Investors should know there are all kinds of resources available to help them build properly diversified portfolios in a more conscientious way.

Q: Are there additional risks with Socially Responsible Investing that should be considered?

We should caution investors to keep their mandates wide enough to allow for a fully diversified portfolio. Otherwise, the same general risks of investing exist, and we would encourage investors to work with professionals to understand and protect against general and more individualized risks.