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Social Responsibility vs. Performance

Dear Clients & Friends, First, let me thank all of you for your overwhelming response to last weekend’s B-Corp announcement, which hit the second highest read-rate of our weekend reading series, which is now in its 7th year.  We were also flooded with congratulatory emails.  What a great way to have begun Thanksgiving week!  To say the least, we are very thankful. We did, however, receive two emails from beloved family members in which concerns were expressed regarding the potential impact that our socially responsible investment philosophy may have on portfolio performance.  These are very good and very relevant questions, so we thought we’d address these questions here for everyone’s benefit. The Evaluation: Our B-Corp certification was awarded to us based on the way MOR Wealth Management chooses to conduct business. How we invest our client’s money is an important yet small part of the entire evaluation. More heavily weighted are things like our financial transparency, billing methodology, corporate governance, environmental impact (internal), workplace diversity, paid time off, employee volunteerism, charitable donations, energy usage, waste disposal, regular audits, health care benefits… and the list goes on and on, and on.  The certification process is industry specific. For a finance company, there is an entire section of the B-Corp evaluation dedicated to how we invest our clients’ money and to how our investment decisions affect the community. While this is indeed very important to us as citizens of Planet Earth, it is not at the core of our eligibility for the B-Corp certification. We are not saving the world through our investments.  However, we are doing the best that we can to not to damage it further. Let’s examine the difference between the two… Exclusion, not Inclusion: We do not invest money for the sole sake of promoting the social good. Although I wish that we could, that’s not what you’ve hired us for.  Therefore, we are not limiting our investments to only the most responsible companies and mutual funds available.  However, we are directly and purposefully trying to exclude the worst of socially irresponsible companies.  While any philosophical restriction will limit the number of investments available, it is not an extreme limitation in this case. Rather, this is a limitation that excludes the kinds of companies that we are confident our family of clientele is not interested in profiting from. (It is worth noting that we do have a small number of clients who have requested a deeper approach and want to restrict their own investments to only the highest ranking of socially responsible companies. This approach, while noble, does severely limit our selection of investments, and poses a significant challenge regarding overall performance.  Nonetheless, we are proud to represent these clients and enjoy the challenge in the spirit of the greater good.) For most of our clients, our socially responsible approach does not exclude the majority of investments from our pool of options.  As it is, we are looking to exclude those companies ranked in the bottom quartile of their peers. Therefore, while our range of selection may be slightly smaller, there remains a vast array of companies and funds to choose from, and we do not feel that portfolio performance will be negatively impacted. Comparative Performance: The following research is highly subjective because there are so many indices to choose from when comparing different strategies and investment practices. However, I thought it would be helpful to compare a few socially responsible indexes to standard indexes. In each of the graphs below, the orange line indicates zero. The green line indicates the extent to which the ESG index (the socially responsible index) was ahead of or behind its traditional counterpart. The year is indicated on the horizontal axis, while the degree of difference is indicated on the vertical axis.

In the first graph, we do not see any consistent trend between the ESG and the US (domestic) index, but we do see that there has not been any difference greater than 1% over the last 8 years.

In the graph that depicts international investing, we see that the ESG index has remained above the standard index over the last four years, although only by a small margin. In fact, it is such a small margin that it’s probably better to just call it even.  But notably, according to this graph, there has not been any in performance.

In the third graph, we took a deeper step and reviewed Emerging markets.  In this sample, we see meaningful outperformance of the ESG index.

The purpose of this message was not necessarily to prove that we will be more profitable by using this approach.  It was more of an effort to educate our community as to why we believe that it will not be less profitable.  Any extra portfolio return is icing on the cake.

To reiterate, most of our eligibility for the B-Corp certification has to do with the way MOR Wealth Management chooses to conduct business. Although it is an important part, how we invest our client’s money is only one small piece of the evaluation.

We are extremely proud of our B-Corp status. We plan to brag about it regularly and we hope you will do the same!

Please feel free to share your feedback, and have a lovely weekend.

Matthew Ramer, AIF® Principal, Financial Advisor MOR Wealth Management, LLC

1801 Market Street, Suite 2435 Philadelphia, PA 19103 P: 267.930-8301 | c: 215-694-4784 | f: 267.284.4847 |

601 21st Street, Suite 300 Vero Beach, FL 32960 P: 772-453-2810

The majority of this content was written and distributed MOR Wealth Management, all rights reserved. Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a registered investment adviser. Fixed insurance products and services offered through CES Insurance Agency.  Investing in the stock market may produce monetary gains or losses and may not be suitable for all investors. An investment’s socially responsible focus may limit the options available to the investment or investment manager. Due to the impracticality of assessing of certain asset classes, such as U.S. municipal securities, government securities, currency, commodities, etc., not all assets classes can be analyzed.


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