Socially Responsible Investing Doesn’t Mean Sacrificing Profit

Recently, prospective client Melaver, Inc. asked them to put together a Socially Responsible Investing (SRI) portfolio, which is an investment strategy that attempts to maximize both financial return and social wellbeing and sustainability. Keaton and Murphy proceeded to research options for Melaver and surprisingly, they found a way to invest in companies that share their client’s values without sacrificing total return.

Generally, socially responsible investors favor corporate practices which are environmentally responsible, support workplace diversity, and increase product safety and quality. Some also avoid businesses involved in alcohol, tobacco, gambling, weapons and other military industries.

SunTrust’s Keaton/Murphy Group expects Socially Responsible Investing to continue to grow in popularity as investors, like Melaver, Inc., are becoming increasingly concerned with aligning their investment strategies with their core values.

The family-owned real estate company is committed to economic, environment and social sustainability – having a positive impact on the community and the environment. Chief Financial Officer Denis Blackburne has worked throughout his career to obtain maximum return on investments. When he discussed the original, non-SRI investment plan with Martin Melaver, Chief Executive Officer of the firm, “Martin told me to walk the talk,” Blackburne said.

“Talking with Martin I suddenly realized it was not in line with our philosophy,” Blackburne said of the original, non-SRI plan. “If we are a truly sustainable company – we recycle everything in our offices, we build in an environmentally friendly manner and use energy efficient designs – why wouldn’t we look at the way we invest funds?”

“We knew it existed (but) I thought the returns would be less,” Blackburne said. He was surprised the returns were comparable, even for investments that were compatible with their company’s philosophy. “That was a nice and exciting discovery. We met our desire to invest in a socially responsible manner, yet obtained a comparable rate of return for a similar risk level.”

The Keaton/Murphy Group has made significant inroads in understanding the SRI approach for their clients. “As we were doing more and more research into Socially Responsible Investing, we are finding that it is better and easier for our clients than we had originally thought,” Keaton said.

“We get a lot of specific requests without our clients using the term, ‘socially responsible investing,’” Keaton said. “Rather, they may say they don’t want to invest in alcohol or tobacco companies, for example, or corporations that have been investigated by the Securities and Exchange Commission. It is a strategy that we will be talking about more with clients,” he said.

“Who doesn’t want to do the right thing if it doesn’t hurt them financially?”

The Keaton/Murphy Group had expected they would be offering Melaver, Inc. lower returns with a Socially Responsible Investment portfolio. In actuality, the socially responsible portfolio had better returns than the non-SRI one they first presented in the fall of 2006. It is important to note that past performance does not guarantee future results. The SRI portfolio for Melaver had more volatility, but the company was willing to accept that.

There are many levels of Socially Responsible Investing, Murphy explained. While one investment may be socially responsible when you research it, there is no guarantee it will stay that way, unless it is SRI by prospectus, meaning it is spelled out as a commitment or philosophy. While there are various screens to evaluate whether an investment is socially responsible, each investor has to decide how far he or she wants to take SRI.

“More than likely no two SRI philosophies and portfolios will ever be the same,” Murphy said.

“Since the corporate scandals (such as Enron and Worldcom) and the bear market in 2001, we’ve seen personal values being discussed in line with investment objectives,” he said. “Corporate responsibility is becoming more important to our clients. It’s our job to stay in front of that trend.”

As demand for SRI in Savannah grows, Keaton and Murphy continue to research investment opportunities for their clients. They are looking for excellent investment managers and trying to find separately managed accounts that they can track, which is not possible with a mutual fund. The Keaton/Murphy Group specializes in asset allocation and knows the exact breakdown of an investment’s holdings at any given time.

“Our job is to serve our clients,” Keaton said. “Instead of going from the top down, we worked (SRI) from the client up.”

That focus on service may have opened a niche business opportunity for The Keaton/Murphy Group in Savannah, according to Blackburne.

Nearly one out of every ten dollars under professional management in the United States today
is involved in Socially Responsible Investing, according to The Social Investment Forum’s “2005 Report on Socially Responsible Investing Trends in the United States.” That means $2.3 trillion out of $24.4 trillion are in professionally managed portfolios utilizing one or more of the three core strategies that define socially responsible investing: screening, shareholder advocacy, and community investing. The SRI movement itself took hold in the U.S. as people began divesting South African investments during apartheid.

The Social Investment Forum describes SRI as an investment process that considers the social and environmental consequences of investments, both positive and negative, within the context of rigorous financial analysis. Investors intentionally put their money to work in ways designed to achieve specific financial goals, while pursuing a future based on sustainability and the needs of multiple stakeholders, including employees, their families and communities.

In the 10 years since its first report, socially responsible investment assets grew four percent faster than the entire universe of managed assets in the U.S, according to the Social Investment Forum’s report. Ten years ago, SRI outside the U.S. was in its early stages, but today interest in SRI and demand for information and resources are growing around the world.

If oil prices remain high, alternative energy sources become cost-effective, giving incentive to explore other resources, for example ethanol. New developments and advances in technology offer more opportunities for SRI, Keaton explained.

SRI doesn’t just make the client feel good, Murphy said – it encourages corporations to make good choices as well.

“You’re asking corporations to be responsible; if they’re responsible to the environment, responsible to the community, responsible to their values, it seems likely they’ll be responsible to their investors,” Keaton said.

“Without a doubt social responsibility is in the back of every CEO’s mind,” he said. “Any little bit helps. If they’re doing it so the shareholders see them in a better light, but it’s not part of their core philosophy, at least they’re doing it. If everybody did a little bit, that’s a lot.”

The Keaton/Murphy Group of STIS uses a disciplined philosophy to create and implement customized investment portfolios for high net worth clients, corporations, and endowments. For more information call 912-944-1021.

Melaver, Inc. is a third-generation, family-owned business based in Savannah, Georgia. The company recently received the Business of the Year award from Buy Local of Savannah for its local commitment to environmentally responsible projects. The company developed the first all-retail LEED shopping center in the country, Abercorn Common, including the first LEED McDonald's worldwide. Melaver, Inc. is not affiliated with SunTrust Investment Services, Inc.
Contact: (912) 236-0781
www.melaver.com

For more information about the Social Investment Forum, go to http://www.socialinvest.org