Investing With a Purpose: Looking Beyond ‘Socially Responsible Investing’

Many investors are looking to align their values and investments, which has contributed to the growth of social impact investing.

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Updated June 2017

Podcast Transcript

Host: Peter Thompson, Senior Regional Fiduciary Manager, Philanthropic Services – Northeast, Wells Fargo Private Bank

Guest: Kei Sasaki, CFA Regional Chief Investment Officer - Northeast, Wells Fargo Private Bank

[Peter]:

While the roots of Socially Responsible Investing (or "SRI") date back centuries, recent developments suggest that the discipline is now much broader. At Wells Fargo, we refer to the discipline as Social Impact Investing or "SII." SII awareness is accelerating and has many likely investor implications in the years ahead.

Hello, my name is Peter Thompson, Senior Regional Fiduciary Manager for Philanthropic Services for Wells Fargo Private Bank. Joining me to discuss SII is Kei Sasaki, Regional Chief Investment Officer for Wells Fargo Private Bank. Thanks for joining me, Kei.

[Kei]: 

Thanks Peter. It's great to be here.

[Peter]: 

Kei, demand for SII strategies is clearly growing and the source of this demand appears to be somewhat universal. Can you share with me some statistics behind the growth and also identify some of these groups of investors pursuing SII?

[Kei]: 

Of course, Peter. We have already seen rapid evolution in SII and as it becomes more mainstream, more opportunities will likely emerge and more demand to chase them. The United Nations Principles of Responsible Investing initiative (1) and the $60 trillion in assets managed by its global signatories is an indication of the size of the opportunity. Now as for the types of interested groups, they cover a wide range including sovereign wealth funds, pensions, non-profits (like academic and faith-based) and family offices. SII demand is also evident across demographic groups, like the Millennial generation, women, and minority groups. 

[Peter]: 

So, Kei, if I'm an investor considering SII, what investment options are open to me? 

[Kei]: 

Well, Peter, we have already seen a rapid evolution in SII strategies in recent years. But one shared aspect across similar strategies that has stayed constant is that the values-based objectives tied to such strategies continue to be longer-term. For that reason, investors may want to consider a long-term, strategic investment strategy that's bound by a fiduciary, and carefully governed by a well-defined investment policy statement — or an IPS. Also, private capital and private real estate investments align well with the longer time horizon of such values.

[Peter]: 

Are there any off-the-shelf investment options for investors? 

[Kei]: 

Well, depending on their preferences, SII investors might also want to consider traditional SRI or Environmental, Social, and Governance — or ESG — strategies. These standardized strategies tend to employ approaches like "negative screening," which simply exclude assets that are deemed non-SII compliant, which are often less customized compared to the ones I mentioned previously. Industry service providers have established exclusionary standards, which many asset managers reference to construct portfolios. While such approaches might be scalable and thus economically beneficial to an investment manager, the end product can fall short of the investors' core ideals — so in other words, "buyer beware" when considering such strategies.

[Peter]: 

So overall, Kei, how have SII strategies fared from a performance perspective? 

[Kei]: 

Studies, such as that of Abramson and Chung that have analyzed the relationship between portfolios of companies with relatively attractive SII ratings and portfolio returns show a positive correlation. (2) Of course, past performance is no guarantee of future results. But as I mentioned, challenges do remain when managers are implementing a negative screening strategy. We recommend investors seek out full transparency to avoid poorly managed SII strategies. Therefore, we recommend that SII investors engage a trusted investment advisor who is knowledgeable about SII and has access to SII resources. Your advisor can help to identify the quality strategies that align with your overall wealth plan.

[Peter]: 

Thank you for joining me in this discussion, Kei. The growing importance of Social Impact Investing could present new opportunities for investors who choose to invest based on their heartfelt principles. For more information, we invite you to speak with your investment professionals who can help you assess whether the types of investments that you heard in this podcast are appropriate for your specific circumstances. Thank you for joining us on this podcast.

 

Footnotes:

(1) The UN-backed Principles for Responsible Investment, a global initiative launched in 2005 to promote responsible investment.

(2) Socially Responsible Investing: Viable for Value Investors, Abramson L. and Chung, D., Journal of Investing 2000, 9(3), pp 73-80.

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This podcast is not an offer to buy or sell, or a solicitation of an offer to buy or sell the strategies mentioned. The strategies discussed or recommended in the presentation may be unsuitable for some clients depending on their specific objectives and financial position. This information is provided for education and illustration purposes only.

All investing involves risk including possible loss of principal. A strategy's social policy could cause it to forgo opportunities to gain exposure to certain industries, companies, sectors, or regions of the economy, which could cause it to underperform similar portfolios that do not have a social policy. A socially responsible invstment style may shift in and out of favor.

The information and opinions in this podcast were prepared by Wells Fargo Wealth Management. Information and opinions have been obtained or derived from sources we consider reliable, but we cannot guarantee their accuracy or completeness. Opinions represent Wells Fargo Wealth Management's opinion as of the date of this podcast and are for general information purposes only. Wells Fargo Wealth Management does not undertake to advise you of any change in its opinions or the information contained in this podcast. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this podcast. 

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