Investing with Integrity

In my last post I alluded to my concerns about the socially responsible investment (SRI) market.  I've always believed in putting my money where my mouth is, so I've experimented in developing my own portfolio over a period of several years and without going through the highs and lows of this, I've settled on an approach that I think has wider application.  I've called this approach '3D Investing' and it aims to maintain the ethical integrity of an investment portfolio by minimising ethical compromise, maximising social impact and meeting financial expectations.  My belief (based on 20 years experience of advising socially motivated investors) is that many investors, and especially those that have inherited large sums or who have been successful entrepreneurs, really do want to do more with their money than just make some more, albeit in a more 'ethical' manner.  They often want to be involved with their investments, seeing the difference they can make beyond financial return, and if they can see the social impact, may be prepared to take on a higher level of risk.

 "Many investors, and especially those that have inherited large sums or who have been successful entrepreneurs, really do want to do more with their money than just make some more"

I share these beliefs which are all based on maintaining a high degree of ethical integrity.  All fine words, but what does this mean and how can anyone else know whether it might resonate with them?  I'm therefore setting out the principles that underpin the 3D Investing approach.  Some of these might seem obvious, but the simple fact is that these are rarely followed in entirety and I don't know of any existing portfolio management service that embraces this philosophy.  So, I think it worth  documenting what I believe to be the core foundations of investing with integrity for socially motivated investors:


Inspiring investments
3D investments need to inspire the investor.  It’s no good just replicating an index.  3D investments need to be compelling.

Investing in the welfare of people can be really inspiring

Be transparent 
Transparency is at the heart of 3D investing.  If compromises have to be made (and they usually do), then you need to be confident that all of the pros and cons have been considered, and to be able to see the evidence.


Social impact is a core purpose  
It’s not enough to simply avoid the 'bads' (negative screening), choose the 'least worsts' (best of class) or to put a small amount of the portfolio in positively screened stocks (thematic investment).  Within the given financial parameters, the goal is to maximise social return wherever possible.
 

3D Investing is not philanthropy but rather, an investment approach

Financial returns should reflect the level of risk being taken   
It is not a philanthropic exercise, but rather a way of generating long-term financial returns commensurate with the investor’s attitude to risk. 


Minimise ethical compromise 
Some ethical compromise is inevitable but this should be readily defensible and reduced wherever possible. 


Take good risks 
Taking risk is part and parcel of 3D investing, but risks need to be quantifiable, known and reduced by utilising a wide variety of assets and by appropriate use of collective vehicles.   

Risks need to be quantifiable, known and reduced

Investments are not short-term trades
3D investing is all about investing in financially sustainable investments in the long-term.  This means low levels of turnover, which also means lower transaction charges. 

This is very different to most socially responsible investment portfolios and I'll explain why in my next post.