Socially responsible investing (SRI), also known as environmental, social, and governance (ESG) investing, screens for companies that consider both their returns and their responsibility to the wider world. It’s a growing market for investors, with assets totaling $30 trillion as of 2022.
We launched our first SRI portfolio back in 2017, and have since expanded to a lineup of three options:
- Broad Impact
- Social Impact
- Climate Impact
All three are globally-diversified, low-cost, and built to help align your investing with your values. So let’s explore a few ways they do that, before tackling a common question about the SRI category in general: performance.
How our Social Impact portfolio lifts up underserved groups
Social Impact uses the Broad Impact portfolio’s foundation while adding a trio of funds focused on helping underserved groups get on equal footing.
There’s $SHE and $NACP, which screen for U.S. companies demonstrating a commitment toward gender and racial equality, respectively. Then there’s $VETZ, our latest addition to the portfolio.
$VETZ is the first of its kind: a publicly-traded ETF that mainly invests in loans to active and retired U.S. service members, and the survivors of fallen veterans. These types of home and small-business loans have historically helped diversify portfolios, and they also help lower borrowing costs for veterans and their families.
And unlike $SHE and $NACP, which are comprised of stocks, $VETZ is an all-bond fund. So even if you have a lower appetite for risk when investing, your SRI portfolio can maintain an exposure to socially responsible ETFs.
How the $VOTE fund is shaking up shareholder activism
Remember the “G” in ESG? It stands for governance, or how companies go about their business. Do they open up their books when necessary? Is their leadership diverse? Are they accountable to shareholders?
On that last front, there’s the $VOTE ETF found in each one of our SRI portfolios. On the surface, it seems like a garden variety index fund tracking the S&P 500. Behind the scenes, however, it’s working to push companies toward positive environmental and social practices.
It does this by way of “proxy” voting, or voting on behalf of the people who buy into the fund. Engine No. 1, the investment firm that manages $VOTE, puts these proxy votes to use during companies’ annual shareholder meetings, where individual shareholders, or the funds that represent them, vote on decisions like board members and corporate goals.
In 2021, Engine No. 1 stunned the corporate world by persuading a majority of ExxonMobile shareholders to vote for three new board members in the name of lowering the company’s carbon footprint. And it did all this in spite of holding just .02% of the company’s shares itself. Not a bad return on investment, huh?
Does SRI sacrifice gains in the name of good?
We now stand eye-to-eye with the elephant in the room: performance. Worrying about returns is common regardless of your portfolio, so it’s only natural to question how socially responsible investing in general stacks up against the alternatives.
Well, the evidence points to SRI comparing quite well. According to a survey of 1,141 peer-reviewed papers and other similar meta-reviews:
The performance of SRI funds has “on average been indistinguishable from conventional investing.”
And while the researchers note that it’s “likely that these propositions will evolve,” they also found evidence that SRI funds may offer “downside” protection in times of social or economic crisis such as pandemics.
Your socially responsible investing, in other words, is anything but a charity case.
Simplifying the socially responsible space
Not long ago, SRI was barely a blip on the radar of everyday investors. If you were hip to it, you likely had just two options:
- DIY the research and purchase of individual SRI stocks
- Pay a premium to buy into one of the few funds out there at the time
Those days are thankfully in the past, because our portfolios make it easy to express your values through your investing. And our team of investing experts regularly seeks out new funds like $VETZ and updated SRI standards that strive to deliver more impact while helping you reach your goals.
Check out our full methodology if you’re hungry for more details. And if you’re ready to invest for a better world, we’ve got you covered.
