Amy O’Brien & Ingrid Dyott: Investing in a Socially Responsible Way

July 6, 2012

Impact investing, while not yet mainstream in this country is growing rapidly and is very much a global phenomenon. The financial times recently reported that “about 95% of the 250 largest global companies now report on their corporate responsibility activities, a jump of more than 14% from 2008. The Financial Times notes that two-thirds of those that do not report are based in the U.S. and the picture is more mixed among smaller companies. However increasing numbers of investors in the U.S. are paying attention to environmental, social and governance issues, or ESG as they are known in the trade. According to a report by the Social Investment Forum Foundation on socially responsible investing trends in the U.S.,“sustainable and socially responsible investing (SRI) in the United States has continued to grow at a faster pace than the broader universe of conventional investment assets under professional management.”

Here are the latest figures:
In 1995, the year of the foundation’s first trends report, SRI type investments were $639 billion. By 2010 they had jumped to over $3 trillion, a 380% increase. Whereas the conventional assets under management grew from a much larger base of $7 trillion to $25.2 trillion, a much smaller increase of 260% in the 15 year period.

As a result individual investors have more choices largely among mutual funds, but also including ETFs and alternative investment funds. In 1995 there were only 55 funds with $12 billion in assets incorporating ESG factors. There are now nearly 500 funds considering them with more than half a trillion dollars invested.
This week’s guests represent two of those choices and work for firms with a long history in this relatively young discipline.

Amy O’Brien is the head of global social and community investing at TIAA-CREFF, a financial services firm with $487 billion dollars in assets under management… about $12 billion of that is invested in what the firm calls the CREFF social choice account, a program the firm started in 1990 to meet a growing demand to help its clients quote“invest in companies that reflected their core values.” The firm also launched a social choice
equity mutual fund in 1999. O’Brien is responsible for the environmental, social and governance –ESG- criteria unilized in these products as well as its community investing programs.

Ingrid Dyott is co-manager of the socially responsible investing strategy –SRI- at money management firm Neuberger Berman, and co-manager of its nearly 2 billion dollar socially responsive mutual fund. She is also associate portfolio manager of Neuberger’s guardian fund, a sibling to the socially responsive fund but without the prohibitions against industries such as alcohol, tobacco and gambling and without the strict SRI screens. The performance of the two funds is nearly identical.

    

WEALTHTRACK Episode #902; This program was originally broadcast on July 6, 2012.

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Newsletter

Consuelo MackThe world as investors know it is changing in so many ways, some positive, some not. Our job on WEALTHTRACK is to help you deal with the new realities whether we like them or not!

Fiscal cliff negotiations are just as muddy as before. The news leaks and spins vary from hour to hour from both sides of the table. As long time number-one ranked Washington analyst, Tom Gallagher told us exclusively right after the election, the message Congress and the President got from voters is “an awkward one.”

“The message is to get things done without compromising on the priorities of your party’s base. That’s a very difficult thing to do. That’s why my expectation on the fiscal cliff isn’t really based on the perception that the winners have a mandate to compromise. It’s more that they have a desire to avoid blame and that that will lead to the kind of compromise that moves issues off into next year, but it doesn’t really create the conditions for a major deal, you know, a grand bargain next year on entitlement reform and tax increases.”

In the meantime, the reality is that our taxes are going to go up 3.8% on investment income for starters to pay for ObamaCare.   That eventuality makes municipal bonds attractive even for taxpayers who don’t think their personal income justifies the investment. We will explore munis and other tax efficient strategies on WEALTHTRACK next month.

This week, as public television continues its winter fund raising drives and pre-empts weekend programs in some markets, we are presenting part 2 of our special on socially responsible, “impact” investing, a movement that has gone mainstream in Europe and is gaining traction in the U.S. So be prepared to answer or ask questions such as, how sustainable your investments are or, are you investing in a socially responsible way, especially from younger generations.

Impact investing is growing rapidly and is very much a global phenomenon. The Financial Times recently reported that “about 95% of the 250 largest global companies now report on their corporate responsibility activities, a jump of more than 14% from 2008.” The FT notes that two-thirds of those that do not report are based in the U.S.

Increasing numbers of investors in the U.S. are paying attention to environmental, social and governance issues, or ESG as they are known in the trade. According to the 2012 report by the Social Investment Forum Foundation on Socially Responsible Investing Trends in the U.S., “sustainable and socially responsible investing (SRI) in the United States has continued to grow at a faster pace than the broader universe of conventional investment assets under professional management.” Here are the latest figures: in 1995, the year of the foundation’s first Trends report, SRI type investments were $639 billion. By the beginning of 2012, they were nearly $3.7 trillion- a 486% increase. During the same period, conventional assets under management experienced a much smaller increase of 376%.

As a result, individual investors have more choices, largely among mutual funds, but also including ETFs and alternative investment funds. In 1995 there were only 55 funds with $12 billion in assets incorporating ESG factors. There are now over 700 funds considering them, with over a trillion dollars invested.

This week’s guests represent two of those choices and work for firms with a long history in this relatively young discipline. Amy O’Brien is the head of Global Social and Community Investing at TIAA-CREF, a financial services firm with $495 billion in assets under management- over $11 billion of that is invested in what the firm calls the CREF Social Choice Account, a program the firm started in 1990 to meet a growing demand to help its clients “invest in companies that reflected their core values.” The firm also launched a Social Choice Equity Mutual Fund in 1999. O’Brien is responsible for the environmental, social and governance- ESG- criteria utilized in these products as well as its community investing programs.

Ingrid Dyott is co-manager of the Socially Responsible Investing Strategy– SRI- at money management firm Neuberger Berman,  and co-manager of its nearly $2 billion Socially Responsive Mutual Fund. She is also associate portfolio manager of Neuberger’s Guardian Fund, a sibling to the Socially Responsive Fund but without the prohibitions against industries such as alcohol, tobacco and gambling and without the strict SRI screens. The performance of the two funds is nearly identical. I’ll begin the interview by asking O’Brien and Dyott to explain their very different approaches and objectives for their respective portfolios.

If WEALTHTRACK is pre-empted by a pledge drive this week, you can watch the show on our website as streaming video or a podcast. You can also find the One Investment picks of our guests and my Action Points there. For those of you who would like to see our program 48 hours in advance of the broadcast, you can subscribe to our WEALTHTRACK PREMIUM service on the website. We are also adding new information to PREMIUM and our WEALTHTRACKEXTRA features to give you greater insights into our guests and the topics they are covering.

Have a great weekend and make the week ahead a profitable and a productive one!

Best regards,

Consuelo

Guest Info

Amy O’Brien
Head of Global Social & Community Investing, TIAA-CREF

Ingrid Dyott
Portfolio Manager, Neuberger Berman Socially Responsive Fund

Action Point

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One Investment

AMY O’BRIEN: INVEST IN YOUR OWN BACKYARD
Community Development Financial Institutions (CDFIs)

“We’ve been talking a lot about public companies today, but I think I’d just like to offer another potential route for individual investors to engage in impact investing. And that is through community development financial institutions that are in their own backyards. And CDFIs are financial institutions, they’re certified by the U.S. Department of Treasury, and they really provide essential financial services to the local community. They help with the financing of affordable housing, creation of new jobs, and other commercial activities that help distressed communities engage better with their regional economies.

So you, as an individual investor, could actually go and open an account and receive a favorable rate of return on a CD. These CDs are entirely backed by FDIC insurance up to the limit allowed, and the proceeds of those would go to supporting those institutions. So there are many worthy, high social impact community financial institutions here in New York City- Carver Federal, First City in Washington, Urban Partnerships in Chicago, and Denver, there’s Native American Bank, and there’s Mechanics and Farmers in North Carolina just to name a few, where we actually have deposits out of our general account placed in those institutions.”
– Amy O’Brien

DYOTT: GET EDUCATED
Visit USSIF.org– the Forum for Sustainable and Responsible Investing

“I personally believe that environmental and social issues matter in terms of investing. And if this resonates with your viewer ship, I encourage them to ask their financial advisor about SRI and sustainability, to inquire with their 401(k) administers to see if it’s an option in their plan, and to educate themselves by going to USSIF, the Forum for Sustainable and Responsible Investing to learn more about the impact of ESG, sustainability, SRI, call it what you will.”
– Ingrid Dyott

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