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Socially responsible investments can get complicated

Socially responsible investments can get complicated


Socially responsible investments can get complicated


Investing by moral compass is getting more popular — but it’s not always so easy.

Take the recent blunder in Vanguard’s US ESG Stock exchange-traded fund.

The fund invests in ESG stocks, or companies that meet certain environmental, social and good governance criteria. It’s not supposed to invest in weapons makers, but recently it bought shares of gun maker Sturm Ruger & Co. and held them for more than a month.

The company later resolved the issue and emailed shareholders on Aug. 5, according to Vanguard, an investor group based in Malvern, Pennsylvania.

The incident underscores how tricky investing in socially responsible companies can be — assuming you have the know-how — even though more investors, especially younger adults, would like to make these choices.

Over half of millennials working with a financial investor have discussed investing in an ESG, according to a new report by Allianz Life, a financial service company. A quarter of Gen Xers and 11% of baby boomers also are looking at these investments, according to the survey of 1,000 people.

Social issues and environmental consciousness are becoming larger driving factors for many investors, according to Kelly LaVigne, vice president of Consumer Insights for Allianz Life.

Investors are especially interested in companies that provide safe and humane working conditions, living wages, and quality health insurance for workers, the report said. They also are interested in companies with transparent business practices.

“It’s not just a millennial issue,” LaVigne said. “Certainly, they may be more aware of some of the issues, but Gen X and the boomers are just as interested in these issues when they’re brought up — but, they aren’t always front of mind.”

While it’s possible to invest in companies that share your values, people might not be investing because they don’t know it’s possible.

For example, only 15% of the people surveyed knew what the letters “ESG” stand for, even though almost 80% said they loved the idea of investing in a company with similar values to their own, according to the report.

However, the ESG label isn’t a fail safe for value-aligned investing as the Vanguard incident shows. Additionally, financial professionals aren’t opening discussions about ESGs with their clients, making it more difficult for those without a financial background to opt into socially responsible investing.

According to the study, one in three people remembered discussing ESG investments with an investing advisor, and 69% of those said they had initiated the conversation.

That could change as the market matures, as a new wave of socially and environmentally responsible companies and investors take hold.

“You might find more financial advisers putting their stake in the ground, should this prove to be a movement that continues to grow,” LaVigne said.


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