Social Responsibility: Not Just About Investing

By John Owens, CFP®, EA

Recent years have seen a HUGE increase in focus in Socially Responsible Investing (SRI). There are now funds that exclude fossil fuels, gun manufacturers, and companies that lack diversity in their executive leadership. Others that avoid big banks, nuclear power plants, and tobacco have also been quite popular. Likewise there are investments that take a more inclusive approach and seek out companies and sectors that meet certain criteria - such as green energy producers or electric car manufacturers. But we’re commonly asked by clients, how should social, environmental, and governance factors - and our responsibility as members of society impact our financial lives? It’s not as simple as you think.

What does Social Responsibility mean?

One of the common themes I’ve noticed from the dozens of conversations about SRI I’ve been a part of is that everyone’s definition is a little bit different. Some folks are adamantly opposed to big banks that have received huge taxpayer funded bailouts while conning their customers with secret fees and giving their executives handsome bonuses. Others are concerned about energy resources and our dependence on fossil fuels. Still, others frustrated with food producers using GMOs or exploiting low-cost labor to harvest their crops. While all of these issues are incredibly concerning, they’re also indicative of the fact that no one-size-fits-all approach to SRI exists.

Perhaps the question should not be as simple as investing in an SRI model, but what role does social responsibility have in the entirety of our financial life - of which the investment portfolio is only one component.

It may be best that we think about this in the context of how we spend, live, give, and invest. When we really get down to it - the idea of being a socially responsible person - the reality is filled with hypocrisy. For example, a person could be socially responsible in their spending, charitable giving, and even implement a socially responsible investment portfolio focused on renewable energy. However, a significant Bitcoin position could negate the positive social impact the portfolio is trying to achieve (Bitcoin has been criticized for its outsized energy usage).

Spending

As consumers, we tend to vote with our feet. Our spending and consumption decisions are a key driver of what is in and out of style - and what businesses press on and grow and which ones falter. And, for better or worse, we spend a helluva lot more than we save and invest. So one way to apply socially responsible concepts to life is to consider them in your spending choices - both large and small.

One large purchase example is your car - this has a variety of social responsibility factors. The long term environmental impact of a Ford Explorer that gets 28mpg on the highway is much different from my Toyota Corolla that gets 40mpg on the same road. And while I live near the beach and an Explorer would be fun, the Corolla can get me just about anywhere I need to go with a much smaller footprint. It’s not as small as the environmental footprint that I’d have if I drove a Hybrid, or zipped around on a Vespa - but it’s better than many alternatives.

Small spending choices can have an impact as well - they tend to compound over time. Shopping local vs ordering online can be a socially responsible choice. Buying organic over GMO. Choosing fair-trade coffee and the farmer’s market for vegetables. How you spend has an impact - often at a much higher multitude than how you’re invested. Supporting a local business by buying toilet paper at the grocery store instead of Amazon not only feels better but directly puts dollars back into your community through state income and sales tax.

Living

How you choose to live can also have a substantial social impact. Choosing a smaller apartment or home helps determine your energy usage. Living in a more urban area can cut down on the need to drive and allow you to use public transit. If you’re building a new home, choosing energy efficient windows and doors, proper insulation, and a forward looking source of heating and cooling can drastically impact your carbon footprint.

Travel, in non-COVID times is also a common part of our lives - and will likely be especially desirable as the world starts to re-open in the months ahead. Choosing to fly less frequently can translate to a much smaller environmental impact.

Living also involves community engagement and involvement. Serving non-profits, volunteering, and getting behind causes that are important to you all have a substantial social impact. What do you care about? How are you using your skills to advance that cause?

Giving

While we’ve talked about giving our time in the last paragraph, there’s also the opportunity to give resources - often money or other assets, to causes you care about. Taking a portion of your investment profits or income and donating to an organization that you feel is advancing society can be an excellent way to make an impact.

Sometimes, the solution is two-fold. For example, you may hold shares of stock that have been passed down for generations - maybe in a big oil or energy company. The initial $500 investment that Grandpa made is now worth $10,000. And while selling it would produce a big tax bill - this is not a fit for your diversified portfolio, and it doesn’t fit your values either. One option would be to donate that stock to a charity of your choice - that does align with your values. This is a WIN-WIN-WIN-WIN. You get rid of a stock you don’t want, the charity can sell it without any tax consequences and keep the proceeds, you don’t pay tax on the $9,500 of appreciation, and you get a tax deduction for your donation.

Many organizations, through their advocacy and effort can take that $10,000 and make sure it has an exponential impact on a social cause - much more than the impact of simply selling that stock so you don’t own a company that doesn’t fit your values set.

Investing

Finally, you can also take a socially responsible approach to your portfolio - as there are a variety of funds that apply screens on social, environmental and governance related items to eliminate certain companies or industries from portfolios.

At Brooklyn FI, we have socially responsible portfolios that aim to avoid investing in a variety of areas of current social concern that meet our core imperatives of diversifying globally, keeping expenses low, and capturing market returns, among other priorities. However, with SRI being a relatively new investing concept, many of these strategies don’t have the track records that their broad-based market index counterparts boast - which does add another degree of uncertainty to them not present in their index peers. Your Brooklyn FI planner can share more details if you’d like to better understand what that investment option looks like.

I think we can all agree that social responsibility is a rather complex and subjective issue in many cases. And the true question isn’t should my portfolio be part of an SRI model or not, but rather what role does social responsibility have in how I spend, live, give, and invest? What is my definition of social responsibility? How do my values align with how I’m living my life? And what changes should I consider making, if I find them incongruent? These are difficult questions, but if there’s one area we can agree - it is truly our social responsibility to ask them of ourselves.