Six reasons to choose an SRI portfolio

The Nutmeg team


4 min read

Socially responsible investing (SRI) allows you to earn potential long-term returns while also sending a signal to the global economy about the kind of behaviour you want to see in the world. Here are six reasons to choose this style.

You want to do your bit

You recycle, you buy locally produced goods where you can, and you sometimes choose to walk instead of driving a car. Why not also ensure your investments are socially responsible? We think investing in SRI is a bit like being a “good neighbour”. It’s about doing your bit to promote a cleaner, happier world.

But socially responsible investing isn’t a charitable activity. As with all investing, you’re putting that money to work in the hope of a positive return over the long term. The difference is that as well as investing for potential returns, you’re communicating to the market what kind of activities you will and won’t accept from the organisations that ultimately use your money. You do that by investing more in companies that score well on environmental, social and governance (ESG) measures, less in those that score poorly, and nothing in the most controversial sectors, such as nuclear weapons or thermal coal.

At Nutmeg, whether you’re investing in a stocks and shares ISA, Lifetime ISA, Junior ISA, pension or general investment account, you can choose to do so in a socially responsible way.

 

You want to earn a good return

Many people assume there is a trade-off between what’s good for the world and what’s good for your pocket. But, in this case, it’s not true. Our research shows SRI strategies have not historically underperformed conventional ones. In fact, there have been many periods in which SRI investors have done better than investors in other portfolios1.

Of course, some people have their own reasons for choosing a portfolio that isn’t SRI, but our research says that performance expectations should not be one of them.

You want to know where your money goes

Traditionally, the wealth management industry has a reputation for being about as transparent as a barrel of oil. But you have a right to know exactly how your money is invested. It’s your money!

One of the reasons Nutmeg was founded was to address the lack of transparency in financial services. We don’t keep you in the dark about where your money goes. On our website and app you can see detailed information about how you’re invested. We’ll even send you a breakdown of every underlying security in your portfolio if you like – that’s a list typically thousands long.

Transparency is key to responsible investing. Our socially responsible white paper explains exactly how our SRI portfolios work.

You want to spread your risk

One of the problems with socially responsible investing is that the set of available investment options, what professionals call a universe, is smaller than for conventional investing. If an SRI portfolio is poorly managed, this could mean your money is concentrated in only a handful of investments.

To get around this problem, it’s really important to spread your risk across as many different investments, in as many different countries, as possible. This is what investors call diversification and it’s a proven way to lower your risk without compromising your potential return.

Our investment team use socially responsible exchange-traded funds (ETFs) to build our portfolios and monitor them for you. Investing in a single SRI fund by yourself might not achieve the maximum amount of diversification.

You want to do all this without paying high investment costs

The cost of investing in SRI is often higher than for conventional portfolios. This is understandable because all of that SRI scoring and measurement takes work.

We predict that underlying SRI fund costs will be driven lower as this investment approach becomes more popular; however, in the meantime we don’t believe customers should be penalised for choosing an ethical investment. That’s why our Nutmeg fee is the same for our SRI and fully managed portfolios – see our fees.

 

You want to contribute to a better world

Above all, socially responsible investing is about doing what you can to nudge the global economy in a more sustainable direction.

Not everyone has the power and influence of huge charitable organisations like the Bill & Melinda Gates Foundation. Many of us need the money in our pensions and ISAs to support us when we’re older. We can’t afford to give it all away.

What we can do is send a message by the way we invest it. Using SRI scoring, Nutmeg invests our SRI customers’ money intelligently. Companies that use renewable energy and support human rights get more of it, big polluters get less – or none. The more of us there are, the more powerful the message. Join us!

Sources

  1. Bansal, Ravi and Wu, Di and Yaron, Amir, Is Socially Responsible Investing A Luxury Good? (February 10, 2018). The paper discusses a “a wealth-dependent investor preference that is more favourable toward SRI during good times, resulting in higher temporary demand for SRI”. https://ssrn.com/abstract=3259209

Risk warning

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future performance. Tax treatment depends on your individual circumstances and may be subject to change in the future.

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The Nutmeg team

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