In Part 2 of my five-part series, we will assess investment returns through the lens of their alignment with your personal values. Traditionally, pure returns were the primary metric for evaluating investments. In Part 1, we expanded this view by considering pure returns in relation to the level of risk taken to achieve them.
More investors are now exploring options that either support values they hold or actively exclude certain sectors, such as fossil fuels. This trend is reflected in the industry, as seen in the 2023 InvestmentNews Advisor of the Year category for Environmental, Social, and Governance (ESG)/Responsible Investing. It’s worth noting that these categories did not suggest that the returns were necessarily better or worse than those in other categories that didn’t factor in ESG considerations. This approach goes beyond traditional financial analysis by also weighing the social, environmental, and ethical impacts of investments.
In this blog, we’ll dive into what values-adjusted investment returns are, why they matter, and how they can guide you toward more meaningful and responsible investment choices.
What Are Social Values-Adjusted Investment Returns?
Social values-adjusted investment returns take into account not only the financial performance of an investment but also its alignment with the investor’s personal values and the broader impact on society and the environment. This concept is rooted in the idea that the true value of an investment is not just measured in dollars and cents but also in the positive or negative effects it has on the world.
For example, an investment in a company that generates high financial returns but engages in unethical labor practices might not align with an investor’s social values. On the other hand, a slightly lower return from a company that prioritizes fair wages, sustainable practices, and community engagement could be seen as more valuable when social impact is factored in.
Social values-adjusted returns are typically evaluated using Environmental, Social, and Governance (ESG) criteria, which help investors assess how well a company’s operations align with their values. These criteria can include:
– Environmental Impact: How does the company manage its environmental responsibilities? This includes factors like carbon emissions, resource use, waste management, and efforts to combat climate change.
– Social Responsibility: How does the company treat its employees, customers, and communities? This involves assessing labor practices, diversity and inclusion efforts, human rights, and community engagement.
– Governance: How is the company managed and governed? This includes board diversity, executive compensation, transparency, and ethical business practices.
Why Social Values-Adjusted Returns Matter
The traditional view of investing focuses solely on maximizing financial returns. However, this approach often overlooks the broader impact that investments can…
Read More: Social Values-Adjusted Investment Returns: Balancing Profit & Purpose
