Green Companies Changing the Economy
A socially responsible mission statement makes for good business, and investment firms know it. When they provide fiscally sound opportunities as a result of the growing demand for portfolios that reflect a client’s values, portfolio managers open up pathways for effective investments that meet socially conscious investors’ needs.
“I’m looking for that sweet spot,” Howard Buffett, grandson of Berkshire Hathaway founder Warren Buffet, said. “How do we improve society through these investments? How can we be creative with capital to address some of the greatest human needs?”
Sustainable, responsible, and impact investing (SRI) considers environmental, social, and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact. Sustainable investors aim for strong financial performance, but they also believe that these investments should be used to contribute to advancements in ESG practices.
And they’re not the only investors who choose their portfolios based on ethics and belief systems.
Faith-based, socially responsible investing
Individuals with strong belief systems make financial and investing decisions in line with guiding life principles. Religion has a major impact on people’s daily lives and is intricately connected to people’s economic conditions. Religion affects investment and financing decisions when it focuses on an interplay among investors’ preferences, risk perception, ethical values, and psychological behavior.
Religious groups and faith-based organizations are careful where and how they invest funds at their disposal, which can include pension funds and other reserves. They are able to use those funds to influence businesses, matching their portfolios with their values. SRI and faith-based investing have much overlap, which provides additional weight to both movements.
Just as SRI means earning a competitive return on investment dollars while being consistent with one’s social or environmental principles, faith-based investing applies principles consistent with one’s religion. The number and popularity of SRI and faith-related funds — which are open to all investors — has grown during the past decade.
The origins of faith-based investing
The Interfaith Center on Corporate Responsibility, or ICCR, is the foundational movement that began in the 1960s in response to rising anger over companies that made big money from unethical forms of production, such as tobacco, the defoliant Agent Orange, or indigestible infant formula in the developing world. Faith-based groups in the 1970s broadened into the movement for socially responsible investing.
Faith-based groups continue to provide guidance and services for investors by identifying issues of concern. Some focus mainly on constructing investment portfolios that avoid what are called “sin stocks,” or tobacco, gambling, and pornography. Today, SRI issues surround climate change, trafficked labor, sustainability, handguns, gender equality, and racial diversity.
Divestment from companies that profit from these areas is becoming more prominent than ever, partially because we are much more connected to how the world works.
Putting the value into faith-based investments
Whether it’s mutual fund managers, mandates from religious leaders, or the insistence of an entire organization, many religious institutions have direct investments in the stock and bond markets, real estate, and more. “This group of funds has definitely emerged as a growing and distinct subset of the SRI world,” said Michael Herbst, mutual fund analyst covering faith-based funds for Morningstar. “What we’re seeing is a growing awareness among individual investors that there may be faith-based offerings that coincide with their own spiritual beliefs perhaps more closely than there had been options in the past.”
There are investment products such as ETFs and Mutual Funds which are designed to hold investments that are compatible with religious values for Christians, Catholics, and Muslims. Regardless of the belief system behind the motivation, more investment money these days than ever is directed to reflect values. Those values can push spur consumer behavioral change. Indeed, many major investment firms have offices that can cater to the wishes of religiously committed clients.
CFD trading and the spread
Investors who base their investment strategies on certain well-defined, ethically-based values need not feel that they’re isolated from the new world of 24/7 trading. Actually, the product line from CMC offers many options for SRI and faith-based investors. And the possibility for return on investment (ROI) might even lead such ethically-oriented investors to consider a contract for difference (CFD), which is a popular form of derivative trading.
CFD trading enables you to speculate on the rising or falling prices of fast-moving global financial markets (or instruments) such as shares, indices, commodities, currencies, and treasuries. In CFD trading, the spread is the difference between the buy price and the sell price quoted. The price at which you buy is always higher than the price at which you sell, and the underlying market price will generally be in the middle of these two prices.
Some of the benefits of CFD trading are that you can trade on margin, and you can go short (sell) if you think prices will go down or go long (buy) if you think prices will rise. CFDs are tax efficient in the UK, meaning there is no stamp duty to pay. You can also use CFD trades to hedge an existing physical portfolio.
If you’re interested in taking your investments to a new level with CFD trading, you can trade on the price of a product going down as well as up. That means you can try and benefit from selling (shorting) as well as buying opportunities. Many investors use CFDs as a way of hedging their existing portfolios through periods of short-term volatility, such as unforeseen market reactions.
Faith-based investing does not ignore fundamental questions any investor should ask when building a portfolio, such as what is the investor’s time frame until retirement, what is the tolerance for risk. But it adds an additional screen to be sure money is going to companies that would not offend their principles.
No longer do beliefs automatically function as a stigma that says you either get good returns, or you invest according to your faith. Savvy investors can successfully meld their religious values with the desire to earn profitable returns.
This post was sponsored by CMC Markets; images from StockSnap