Doing Well by Doing Good
Richard A. Weiss
Chief Investment Officer, City National Bank

Today, many clients are looking to do well financially by doing "good" ethically through a process known as "socially responsible investing." With SRI, the investment preferences and restrictions are social or ethical, as opposed to strictly financial.

At City National Bank, we're able to accommodate these preferences using our same disciplined investment process and adding an overlay process to screen out those stocks that may be considered undesirable by the client.

A popular form of this investing involves portfolios constructed to avoid "sin stocks" - or companies engaged in the production, distribution or licensing of alcohol, tobacco, firearms, gambling or adult entertainment. Sometimes clients may place restrictions on military weapons manufacturers or nuclear power companies, in what are known as "green portfolios."

Recently, SRI has expanded to include other areas of corporate management. For example, companies can be analyzed and screened for their community involvement or charitable giving records, the ethnic and religious diversity of their employees or boards, their attitudes and historical track records on workers' rights and union relations, or other human-rights-related issues.

Our investment technology allows us to construct portfolios that achieve client requests to avoid or de-emphasize these firms and at the same time, minimize any potential negative effects on the portfolio. We do this by offsetting a potential deficiency in one segment of the market with holdings in other segments. In this way, we can accommodate our clients' wishes, while protecting their financial health.

Interestingly, studies on the effect of socially responsible investment styles have shown that over longer periods, there doesn't seem to be any significant impact, positive or negative, relative to more broadly diversified portfolios. In other words, social and environmental restrictions have not significantly affected portfolio performance over longer periods. That's good news for socially minded investors.

This article is for information and education purposes only and does not constitute a personal recommendation or take into account the particular investment objectives, financial situations or needs of individual clients. Clients should evaluate the merits and risks associated with relying on any information provided.