Author Topic: My local government wants to get into Socially Responsible Investing  (Read 1090 times)

jk3

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Long time lurker here!  This idea runs counter to every investment lesson I've learned from the FI community.

http://www.bethesdamagazine.com/Bethesda-Beat/Web-2016/Berliner-Navarro-Call-for-County-To-Divest-in-Fossil-Fuel-Stocks/

I'm not trying to start a debate on climate change on this forum.  I don't even want to get into whether it is ethically appropriate for government institutions to determine which companies are "good" and which companies are "bad."

I want to hear this community's take on the following:
- How much fiscal damage could this do to the county?
- How likely is it that this approach, even when attempted in unison with other local governments, universities, etc., actually achieves its goal?

DrF

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Re: My local government wants to get into Socially Responsible Investing
« Reply #1 on: October 12, 2016, 01:49:52 PM »
http://www.wsj.com/articles/does-socially-responsible-investing-make-financial-sense-1456715888

I think mostly you can't get as good of a return, and you can probably do more good by using better returns to improve the economic opportunities of your citizens.

marty998

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Re: My local government wants to get into Socially Responsible Investing
« Reply #2 on: October 12, 2016, 02:22:40 PM »
I would suggest the returns will be less volatile as fossil fuel stocks are exposed and leveraged to the vagaries of commodity prices, which are inherently more unstable than the rest of the economy.

Returns will therefore be higher or lower depending on when you measure the time period and where the commodity cycle is.

I doubt it will do fiscal "damage", and also doubt it will achieve it's goal. You need the banks to stop lending to these companies and projects to start doing real damage. Not buying shares on a secondary market is not going to do a lot.

It's more of a feel good thing rather than anything else....

chasesfish

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Re: My local government wants to get into Socially Responsible Investing
« Reply #3 on: October 13, 2016, 03:05:36 PM »
Returns will be marginally lower and less diversified.  Socially responsible mutual funds tend to slightly underperform the overall market because of active management fees and a slightly lower number of investment options.

This mutual fund invests in the opposite of socially responsible companies, slightly beats the market over 10 years after absorbing a high expense ratio. 

http://www.morningstar.com/funds/XNAS/VICEX/quote.html

As for what you should do as a citizen, find out how much their spending in investment management for their pension funds, that is more important to you as a taxpayer than what they invest in.

jjandjab

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Re: My local government wants to get into Socially Responsible Investing
« Reply #4 on: October 15, 2016, 06:13:28 AM »
I don't agree with this type of plan generally. However, this article seemed to imply that the county owns $65 million in individual fossil fuel stocks out of a portfolio of $4 billion (so 1.6%). That doesn't seem too bad to sell those if it makes people feel better, as it likely won't change overall returns much.

But I totally disagree when/if the conversation turns to getting out of index funds because they own fossil fuel stocks, etc... That can only increase expenses and typically results in lower returns. And there is always the problem of where to draw the line - would you dump shares of companies like GM and Catepillar because most of the their products require burning gas, etc... The state of Vermont is having this same conversation.