The movement to be responsible global citizens has never been stronger. Yet years in an investment brokerage has shown me that ethical investing, while gaining slight traction, remains unpopular. In fact not once did I hear an advisor or client bringing up the ethical value of their investments. Could people care more about buying a $5 fair trade latte then having their portfolio in ethical companies?
Part of the problem is that many of us have no idea what exactly we are invested in. Managed products given names such as ‘Global Balanced Equity’ ambiguously let us be ignorant. The inquisitive investor may dive in only to get a muddled view of what they are actually buying. Unfortunately ignorance is not always bliss. Put together a bunch of junk mortgages, give it a great credit rating and call it diversified. Next start the 2008 financial crisis.
Another issue is the nature of investing. In a capitalist world the epicenter is the stock market. It breaths profit, and after all that is our ultimate goal. Being emotionally disconnected is one of the greatest skills in being a successful investor. Nobody hires stock traders on ethicality scores.
A liberal arts millennial, aspiring to change the world, I should be the protégé of socially responsible investing. Yet there I was pulling the trigger on shares of arms manufacturer Smith and Wesson. I bought the stock with such ease it scared me that I could put thousands of dollars into a company who socially I didn’t align. A few weeks later I sold the stock for a small profit, ethically disappointed.
Every investor has the right to decide what they purchase and nobody should be chastised for their choices. Nevertheless it is important to ask yourself where you draw the line between ethics and profit. What social causes resonate with you? Is there anywhere you are not comfortable investing?
It’s important to stress that there is no right answer. I’d expect David Suzuki and Donald Trump may vastly disagree over what they deem an ethical investment. Nevertheless they both have charitable foundations and subscribe to their own visions of ethics.
It is a misconception that by being a socially conscious investor you must forgo profits. It is still possible to have a safe diversified portfolio that could beat the benchmarks.
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For larger investors a series of socially responsible stocks and bonds will keep fees low and allow for adequate diversification. This is the best way to customize your portfolio to causes you feel are just and profitable. Nevertheless for small investors it can be a little more difficult. There are a number of companies that have socially conscious mutual funds. Despite this with high expense ratios (sometimes exceeding 2%) they are poor options. I prefer a few solid ethical ETF’s by Blackrock shares. They offer low fees and invest according to social indices.
USD – iShares MSCI USA ESG Select ETF (KLD)
- This fund tracks large US companies that meet government, social and environmental standards met by KLD. This is a good ETF in that is has some large cap U.S companies. Management Expense Ratio (MER) .50%.
CAN – iShares Jantzi Social Index (XEN)
- Not many good ethical funds in Canada. This fund is made up of Canadian companies featured highly on the Jantzi Social Index. It has a reasonable MER of .56%. Like the TSX it has a heavy concentration in financials, so it should be used as part of a larger portfolio.
What do you think?
Are you a raving capitalist or a stubborn socialist? Do you think we as a society can see a true intersection between monetary profit and social equity?
*Disclaimer: The Author does not currently hold, or plan to open any positions in KLD or XEN in the next 14 days after publishing this article.
Author Bio: Steven Bell is a financial writer based out of Vancouver. He has worked both locally with CIBC and at Scotiabank’s International Investment Advisory. His specialties include Wealth Management, Millennial Investing, and Technical & Seasonal analysis.