Pope Francis recently called for people to take greater care in how they interact with the world we share. Investors who heed the Pontiff’s address can look at socially responsible investments and exchange traded funds.
In the latest encyclical, Pope Francis criticized wasteful consumers and companies that place profits above the common good, reports Jacob Pramuk for CNBC.
Nevertheless, John Streur, president and CEO at Calvert Investments, argues that investors can still generate profits while promoting social values.
“What he’s talking about is investing in leading companies that are asking people to behave, take responsibility for some of their actions,” Streur said on CNBC. Investors can find companies “able to conduct their business interests in an expert way with minimal impact on the environment and meet society’s greatest needs.”
For instance, Streur pointed to companies like Apple (NasdaqGS: AAPL), IBM (NYSE: IBM) and Unilever.
Investors can also target companies with a socially responsible mindset through ETFs, including the iShares MSCI USA ESG Select Social Index Fund (NYSEArca: KLD) and iShares MSCI KLD 400 Social ETF (NYSEArca: DSI), which provide broad exposure to companies with socially responsible characteristics. KLD includes a 3.9% position in AAPL and 2.1% in IBM. DSI also includes a 2.0% tilt toward IBM.
KLD and DSI both include stocks with strong environmental, social, and governance records in areas that are relevant to their industries, including carbon emissions, labor management and corporate governance. KLD, though, excludes companies operating in the weapons, alcohol, gambling, nuclear power, adult entertainment and genetically modified organisms industries.
These socially responsible parameters may force companies to take on a long-term business model. In the short-term, some observers may argue that companies could be intentionally setting input costs higher. Nevertheless, many consumers are willing to pay more for the products to feel better about the way a product was made.
Over the long-term, adhering to social responsibility can also diminish costs. Improving energy inefficiency may require a large upfront capital expenditure to set up long-term efficiency. Moreover, a reputation for social responsibility can attract and retain talented individuals who are more apt to feel proud of their work.
Investors seeking to invest in companies that have a smaller impact on the global environment typically follow characteristics described under sound environmental, social and governance, or ESG, principles. Retail investors interested in ESG investments can also take a look at the SPDR MSCI ACWI Low Carbon Target ETF (NYSEArca: LOWC) and the iShares MSCI ACWI Low Carbon Target ETF (NYSEArca: CRBN) for more socially responsible strategies. [Two Low-Carbon ETFs for the Socially Responsible Investor]
LOWC and CRBN both target the MSCI ACWI Low Carbon Target Index, which tries to address carbon exposure by overweighting companies with low carbon emissions relative to sales and per dollar of market capitalization, compared to the broader market. Many of the component stocks are familiar names, including Apple (NasdaqGS: AAPL), Microsoft (NasdaqGS: MSFT), Johnson & Johnson (NYSE: JNJ) and General Electric (NYSE: GE).
For more information on socially responsible investments, visit our socially responsible ETFs category.