Impact Investing: Three Ways for Advisors to Remain Strategic

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Investors often view socially responsible investing ("SRI") strategies as falling short when it comes to returns, or as a simple buzz phrase that has permeated the industry. Investing with social significance, however, has evolved quite a bit to become not just a way to screen out companies based on moral objections, but to screen in companies that are profitable and make an impact.

One of the reasons that being "socially responsible" has maintained popularity in 2013 is because clients are asking for it - they are requiring that their investment decisions and values become aligned. They are also recognizing outperformance in strategies that both avoid evolving liabilities and find growth in new, developing industries -- making SRI an even more compelling investment strategy.

As we know, when there is client demand, the market responds. Over the past eight years, my firm has grown to approximately $900 million in AUM by integrating positive screening and socially responsible strategies into the company's investment theses. For other advisors who are trying to add impact-investment strategies to their service offerings, there are a few basics that must be considered ahead of time.

1. Social Responsibility Is Personal : Commitment to social issues can be highly personal, so advisors should consider individual client needs when seeking socially responsible investment opportunities. Customized investment policies help clients to accept guidance and in turn deepen their relationship with the advisor.

2. Maintain Transparency : As advisors, it is our responsibility to analyze company balance sheets, understand how revenues are sourced, and how revenues turn into earnings. In order for a company to truly be considered sustainable, it must embrace a socially conscious philosophy and demonstrate a commitment to transparency -- allowing stakeholders to clearly comprehend how their business operates and turns a profit. When we can explain how a company makes money, clients can trust that the equities they own are consistent with their investment philosophies and goals.

3. Remain Positive : Traditionally, socially responsible investing has entailed a little more than the application of negative screens to keep companies or industries out of portfolios. At best, the negative-screening approach is incomplete and at worst, creates missed opportunities due to backward-looking generalizations that can hinder portfolios. Socially minded advisors should focus energy on implementing positive screens that monitor significant areas of disruption. By applying positive screens, managers can uncover new, durable growth opportunities that match the progressive interests and values of clients. I have found that analysis and a constant review of investment theses are critical in any impact-driven portfolio.


As advisors, we are perpetually seeking investment opportunities that focus on long-term trends, reduce risk, and generate returns. For the socially responsible investor, focusing on the long term is even more critical as we seek to compound both financial and social returns.
Looking toward 2014, my company is considering four major industries that are experiencing disruption: health care, industrial, food, and technology. Within those industries there are a few notable companies to mention: Illumina ( ILMN ), Perrigo ( PRGO ), Johnson Controls ( JCI ), Rockwell Automation ( ROK ), SunOpta ( STKL ), Cisco (CSCO), and F5 Networks (FFIV).

The social-impact conversation is critical for advisors who expect to connect with those in today's younger generation who are committed to sparking environmental and societal change. As the financial market adapts, the investments we make must include these new imperatives. Innovation and transparency are two progressive themes that we see driving change in the world at large -- and in the socially responsible investments that we make every day.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: ILMN , JCI , PRGO , ROK , STKL

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