If you’re a woman in tech, you’re likely interested in Socially Responsible Investing. You’re affluent,  highly educated, and female. The exact demographics most interested in SRI. Which is to say, my clients.

SRI (also known as Sustainable and Responsible Investing) is increasingly popular and  inexpensive, but uncertainties still swirl around it, many approaches are quite costly. And it can carry particular risk if you work in the tech industry, the very same demographic so interested in it. Ain’t irony a bitch?

What Is Socially Responsible Investing?

“Socially Responsible” means very little. Much like “natural” foods. (An apt analogy!) It conveys that some set of values dictates what people invest in. But which values? Mine might not be yours, which might not be the next guy’s.

If “Socially Responsible Investing” sounds good to you, your first assignment, if you choose to accept it, is to determine what kind of social responsibility you most care about. Here are some options:

  • Islamic finance principles
  • Fossil fuels
  • Women’s rights
  • Labor practices
  • The “sin” industries: tobacco, liquor, gambling, weapons
SRI Strategies

The simplest way to do SRI is simply to exclude problematic industries. Some of the oldest SRI funds did just that. But that hasn’t resulted in those companies or those industries going away.

Investing for Change: Profit from Responsible Investment describes a better strategy, an “industry agnostic” strategy called “Best in Class.” You’ll own the best companies — by certain social-responsibility standards — in each industry (yes, including tobacco, fossil-fuel, gambling companies, etc.). These companies are rewarded for being “best” in their industries, and are therefore encouraged to continue or do even more.

How Do You Invest in a Socially Responsible Way?

You’ve decided you want to invest “responsibly.” How exactly do you do that?

Hire a Professional

I do not need to look far afield to find several examples of investment firms that specialize in socially responsible investing. It’s very popular up here in the PNW.

If you’re in the tech industry, especially on the west coast, you likely live in an area where socially responsible investment firms thrive. If you really care about SRI but don’t trust yourself to “do it right” or don’t want to spend the time and effort to figure it out, hire a professional.

Choose Your Own Funds

Mutual funds and exchange-traded funds are a compromise between paying someone to invest for you and picking you own stocks. It’s certainly less expensive to pay only the fund expense, not an advisor’s cost on top of it, and the fund managers have already chosen the companies. But you still have to research and stay up-to-date on the funds.

And then, of course, there’s always the fact that you have to manage your own investing behavior, which is perhaps THE  investing challenge, and not just for SRI .

There are far too many SRI funds to list here, which is great for SRI investors. More options mean you’re more likely to find one that does SRI the way you want, and competition drives costs down.

Googling “sri mutual funds” will shower you with results. Pay special attention to SRI index funds; they are your best hope for low-cost investing. For example, each of these index funds charge 0.25% or less annually:

Pick Your Own Stocks

I think picking your own stocks, in general, is folly. Adding on that extra level of SRI analysis makes me cry.

Will It Hurt Your Investments?

Well, that reeeeallly depends on whom you ask. Perhaps the best illustration I’ve seen recently of how this is still a raging debate is the titles of the “yes” and “no” camps in this Wall Street Journal article:

“Yes: The evidence is clear that investors undervalue socially responsible firms”

versus

“No: It’s absurd to even try to separate responsible from irresponsible firms”

Even Investing for Change (a decidedly pro-SRI work) says that studies don’t consistently show over- or under-performance for SRI investing.

It strikes me, however, that it’s silly to ask whether “SRI” writ large over- or under-performs. There’s simply too much variation in the definition of “socially responsible” and in the investment strategies used to construct SRI funds. I don’t care what “SRI” investment returns are…I care about the returns of the funds in my portfolio. (Theoretically, of course, as I don’t own any.)

The Cost of SRI

SRI has traditionally been an expensive proposition. And when I used the Schwab screener to look only at “socially conscious” funds, the expense ratios were almost all over 1%. That’s a large hurdle to get over on your journey to good returns.

As more SRI funds are based on indexes, however, costs should go down, as we see in the two funds listed above.

Does It Actually Work?

That is, do companies actually improve their behavior in response to socially-responsible investing? Again, depends on whom you ask. I personally am skeptical.

The question reminds me of this Freakonomics episode, about the global “Divest South Africa” movement in the early 1980s, pushing South Africa to end apartheid. Eventually, apartheid was ended, and the divestment movement received part of the credit.

However, a professor of economics and finance at the Anderson School at UCLA, Ivo Welch, concluded that, “not only did the South Africa divestment movement not seem to have played much of a role in ending apartheid, it didn’t even really hurt South African companies.”

Why? Because for everyone who’s not willing to own stock in South Africa (or, to extrapolate, socially offensive companies), there’s someone who is. After all, if you sell a stock, then, by definition, someone else is buying it.

Considerations for Women in Tech

“There is direct empirical evidence that women tend to invest assets differently from men and typically put more weight on altruistic considerations and future generations.”

So says Investing for Change. I’ve certainly talked about how women invest differently than men.

Women, therefore, are more likely to be involved in SRI than men are, and as women make more money (hello, tech-industry compensation), expect participation in SRI to increase.

However, here’s a caveat for you: Using an industry-exclusion approach (No tobacco! No weapons!) is probably going to be particularly problematic for you. Why? Because, as this Kiplinger article explains,

“Health-care and technology stocks are common holdings because screening criteria often favor those sectors.”

For example, the Vanguard fund VFTSX has 24% of its money in the Technology industry, whereas the benchmark has only 18%. When your job depends on the tech industry’s health, the last thing you want to do is to make your portfolio overly depend on it, too. Be sure to pay attention to the industry breakdown of the funds you invest in so make sure they’re not overweighted towards technology.

SRI as Part of Comprehensive Financial Planning

In both my professional life and my personal life I do the same thing, which is to say, I don’t invest in Socially Responsible funds. And this blog post serves to explain why:

  • So much is uncertain about SRI’s performance
  • Whether or not it successfully encourages companies to change is still hotly debated (not in the same way that climate change is hotly debated; it’s hotly debated by sane people)
  • The costs are usually still quite high
  • In my professional life, because “socially responsible” means something different to each person, serving up one flavor of SRI wouldn’t be all that attractive to most clients.
  • I believe that more power belongs on the consumer side. If you (and everyone else) still drives a car that uses fossil fuels (directly or not),  the fossil-fuel companies care more about that than you not investing in their company. They’ve got your consumer money already, after all, and they can still get investment money from people don’t care about SRI.

Ultimately, however, what I believe more than anything above is that comprehensive financial planning is the basis of financial success, not the details of your investing. If you invest the way I do (passive investing using low-cost, broadly diversified funds) but don’t do any financial planning, that you won’t be well served. If you plan, and choose to invest in SRI, then you probably will be.

Keep in mind also that, during the planning process, you’ll find other ways to express your altruistic and philanthropic inclinations: through charitable donations, a career change, volunteer work, or other ideas that you haven’t thought of yet. Maybe that’s enough, or maybe you’ll want to also have your investing reflect your values, too.

Learn More

Here are other resources you could explore to learn more:

Question: How do you express your values through your financial choices?  You can leave a comment below.

Are you interested in cultivating a financial life that promotes your value? Reach out to me at meg@flowfp.com or schedule a free 30-minute consultation.

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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner and/or an accountant for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.