There’s a common assumption that social responsibility comes at a higher price. Not just in the products we choose to consume, but also in terms of investment options. But we don’t think this is the case.
But the fees are higher
It’s true that there are higher charges associated with investing in specifically socially responsible portfolios. This is because maintaining a responsible portfolio requires in-house research you can trust and engaging with the firms that need improvement to meet the thresholds of socially responsible investing (SRI). These resources and activities are expensive and some of that cost is passed on by the funds through higher charges.
But in our opinion, you get what you pay for and the assumption that higher charges lead to lower returns doesn’t hold water. Of course, it’s impossible to absolutely prove that SRI provides stronger returns than traditional investment. And Sarasin & Partners, who we work with for our SRI offering have a really short history – the portfolios launched at the start of 2020. However, we can look to similar SRI portfolios for useful data. Since launching their responsible offering in November 2017, FE have seen their SRI portfolio outperform traditional by 4.29%. Net of the higher fees we’ve already looked at, for a risk level comparable with Sarasin’s portfolio, that’s 1% pa ahead of traditional.
Of course, those numbers are a benchmark rather than conclusive evidence that SRI provides better returns than traditional investment opportunities, but they certainly help our argument!
But I’m missing out on investing in great companies
The very nature of SRI means excluding some of the possible ‘investment universe’ – those companies that don’t measure up against ESG criteria. The Sarasin portfolios our clients are invested in rule out around 10% of all the companies you could invest in. So yes, in theory, you might be excluded from owning a piece of a profitable firm. However, that profitable firm would definitely not align with any socially responsible aims you might have by virtue of it being excluded by Sarasin.
The wind is blowing in the direction of SRI. The profile of climate change has never been higher and the spotlight on SRI is only going to continue to intensify in the coming years. Given that a good proportion of investment returns is down to being in the right place at the right time, SRI seems like a very logical place to put yourself. Plus, you get to save the world! Who doesn’t want to be a superhero while they’re increasing their portfolio?