Socially responsible investing isn't trendy; it's a smart strategy

Geoff Blyth, BridgeTower Media Newswires

Take one look at recent news headlines and it’s likely you’ll see plenty of talk about conscious consumerism. Look again and you’ll probably see stories around social justice, pay equity or environmental stewardship.

These matters have always been important, but lately they are more front-and-center, as customers have more access to information on the companies they patronize. Savvy buyers are no longer just opinionated about, but also more demanding of responsible behavior from these businesses.

On a global scale, this focus isn’t just curiosity at play; it affects real buying decisions and even stock performance. More and more people are aligning their investments with their personal values. A recent study by AdWeek and Harris Poll confirmed this notion. In fact, 55% of those polled said they would have a better opinion of a brand that phased out polystyrene containers, while 62% shared that they’d feel better about a company that used recycled packaging and containers. Of that latter group, 55% revealed they’d be more likely to buy from brands that took this extra step to show concern for the environment.

So, why does this even matter? And why should someone who oversees investment portfolios care about a corporation’s socially responsible behaviors? More importantly, why should you care?

Environmental, Social and Governance (ESG) investing has increased by 43% from just two years ago, validating a movement that has progressed well beyond trendy. ESG involves the process of selecting investments that pursue, among other themes, responsible environmental stewardship, gender equality, shareholder advocacy, sustainability and social justice. An ESG portfolio, like ours at Tompkins Financial Advisors, is diversified with investment managers paying special attention to companies that provide a social good as well as strong financial returns. Where possible, the portfolio limits or excludes businesses whose primary source of revenue comes from the sale of alcohol, tobacco, firearms and fossil fuels.

As we focus on doing the right thing for our clients, employees, investors, community and environment, so too do our ESG investment managers and funds. This due diligence process is focused on identifying quality investments we believe are among the most financially sustainable globally. Not only can sound corporate governance, environmental practices and social integrity complement moral viewpoints, but they also make good business sense. As one of the first companies to construct a socially responsible investment portfolio 12 years ago, it’s great to see the initiative is not so much a fad as it was at our portfolio inception.

While some companies may yet jump on the ESG bandwagon to gain a marketing advantage, the real benefits of integrating ESG initiatives are becoming standard business practice. Companies that endeavor to protect the environment in which they operate can lower risk profiles and improve financial strength. Social considerations can crystallize a company’s value proposition and promote long-term relationships with clients, employees and other stakeholders. Strong governance can more easily align shareholder rights and management incentives. As more companies and funds embrace these advantages, ESG investment portfolios can now deliver competitive risk and return profiles compared with non-ESG investments. These portfolios diversify among numerous asset classes, valuations, geographies, capitalizations and industries. The underlying quality companies usually possess strong balance sheets, lower debt ratios, seasoned management teams and a true competitive advantage in the form of a vision for the future and commitment to shareholders, stakeholders and the environment. They have the kind of staying power that makes them attractive to a wider constituency.

There’s another behavioral advantage to consider and it’s something I call the “SWAN” (“Sleep Well at Night”) approach to creating a portfolio. When you invest in something you’re comfortable with and that you wholeheartedly believe in, your investment decisions are no longer based on emotions and the news cycle, but rather a long-term vision. Reactionary approaches often derail long-term financial plans, whereas a values-based approach not only helps you rest easy, but also means your head and your heart are in alignment. Who knew? Working for the common good can feel good and grow your wealth.


Geoff Blyth is a senior vice president and chief investment officer for Tompkins Financial Advisors (TFA). He also serves as portfolio manager for TFA’s Western New York region.