The sustainable investments are not just a gimmick. A 2015 report by Morgan Stanley found that “investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments. This is on both an absolute and a risk-adjusted basis, across asset classes and over time.”
The outperformance is attributed to better governance practices, along with diminished profit-eroding conflicts with workers, regulators and consumers. Additionally, some popular screens include the exclusion of poison-pill anti-takeover provisions, transparency about executive pay and policies that favor shareholder rights.
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, were some of the earliest options to hit the market.
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.
For more information on socially responsible investment strategies, visit our socially responsible ETFs category.