A lack of affordable SRI investing solutions may incentivize some savvy investors to do their own research and purchase their own portfolio of individual stocks, but this is almost always a mistake.
If you’re joining the SRI movement, it’s likely because you have a vision for our world and the economy that’s bigger than your own portfolio. To leverage the full scope of impact, you should identify ways that you can coordinate your efforts with others whose values overlap with your own. The easiest way to do this is by purchasing a SRI fund, but there are other ways to maximize your impact.
Going it alone makes it extremely difficult to keep pace with the changing landscape of SRI investing. Volkswagen, for example, was once a darling of sustainable investors—then we found out they were rigging the emissions tests. Other companies are making radical improvements and are becoming worthy of SRI attention. The field is quite dynamic and you or your investment manager will need support to stay on top of latest developments.
You also need to consider how you plan to manage shareholder responsibilities. When I was a younger and more naive investment advisor, I argued that investors should begin attending shareholder meetings and voting proxies. Both tools were given to owners to exercise their stewardship oversight and I now realize that both are a big waste of time for most investors (the Berkshire Hathaway meeting excluded).
Every year, investors are asked to vote on a whole host of issues. Perhaps a company seeks to repurchase shares of its own stock. Or it plans a merger. Companies hire and fire new directors. These actions typically require a shareholder vote.
The problem is that most shareholders own a tiny fraction of total shares and this makes the uncoordinated actions of any one shareholder meaningless. The unspoken message at most shareholder meetings is essentially, “We’re only doing this because we’re required to.”
Naturally, most mainstream investors who own stocks ignore requests to vote or attend annual shareholder meetings. I no longer blame them! Exercising ownership powers are only fruitful when made in coordination with an ownership block large enough to be recognized.
To overcome these hurdles, you may want to identify a fee-only (no commissions) investment advisor who specializes in SRI investing—even better, find one who avoids the plethora of expensive SRI funds. An investment manager can identify investments that match your values and help manage all of your voting responsibilities.
Coordinated action can also take place by purchasing a mutual fund or ETF but the challenge here is that most funds have a poor track record of shareholder advocacy on governance issues as cited here and here. Investments that do have a strong track record for shareholder advocacy often have management fees that exceed a reasonable threshold.
To overcome these challenges, some decide to self-manage a stock portfolio. If you go this route, I recommend that you start by reading James McRitchie’s Shareowner Action Handbook, where he walks investors through the ins and outs of exercising shareholder powers. James is a personal hero and is one of a small group of individuals who regularly file their own shareholder resolutions to encourage corporate best practices.
You will also want to check out the work being done at Proxy Democracy, where you can see how leading investors including public pensions (e.g., CalPERS) and SRI fund company leaders (e.g., Calvert and TIAA CREF) voted their shares.
A natural corollary to this collaboration principle is a willingness to compromise. The two go hand in hand. The quality and quantity of research in the developing field of SRI investing has many gaps that offer plenty of room for disagreement on how best to rank or classify a given company. The deeper you decide to dive into the world of SRI, the more willingness you’ll need to live in “the gray”—that is, between simple black and white solutions.
However you decide to engage, let me be the first to warn you that the SRI community is unlike any other investment community that I’ve ever been a part of. There’s a more even distribution of men and women in leadership roles in this community and this gender balance brings with it a greater sense of collaboration. One leader in the field argued that it’s going to take billions and even trillions of dollars committed to sustainable investing before the capital markets will begin to take this new approach seriously. To get there, we all need to find more avenues to work together.