“In terms of performance, we caution our clients that restricting the list of potential investments may result in lower portfolio returns,” says Asher Rogovy, chief investment officer at Magnifina in Manhattan.
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“SRI is all the rage and we’re seeing robust demand from our clients. But because it’s such a new trend, SRI remains very abstract and poorly defined. Everyone has different values, and it is difficult to measure exactly how an investment would satisfy them. One value that everyone tends to agree about is environmentalism. Renewable energy stocks have been performing well recently and more and more companies are pledging to lower the carbon emissions that result from their business.
A common framework for evaluating potential investments is ESG. (Environmental, Social, and corporate Governance). Several stock research firms provide numerical ratings for ESG. The methods for rating companies are abstract and inconsistent between analysts. They tend to focus on measuring PR risks related to ESG controversies, rather than the actual impacts of each company’s business.
Indeed, SRI is not a science; it is definitely more of an art. Our approach to SRI is to frame it as “Ethical Investing,” and select investments that don’t violate the client’s ethical guidelines. This means that our clients can let us know about activities and affiliations that they disagree with, and we will avoid investing in related companies for them. We rely on 3rd party research to supplement our own research for identifying controversial activities.
In terms of performance, we caution our clients that restricting the list of potential investments may result in lower portfolio returns. However, we appreciate that not all profit is financial, and we support considering the environmental and social impacts of investments. Nevertheless, renewable energy stocks have performed very well in 2020. ICLN is an ETF of clean energy stocks, and is up nearly 70% year-to-date. It hasn’t been this high since 2011, when oil prices were nearly $100 per barrel.”