Our Mission & Socially Responsible Investing
I selected the divest from fossil fuels option. Why is Halliburton/Exxon/another fossil fuels company still in my portfolio?
To maintain diversification in your portfolio, OpenInvest doesn’t recommend divesting from an entire industry. That’s why the default version of the fossil fuel screen only removes the companies with the highest fossil fuels reserves. If you’d like to divest entirely from fossil fuels, please send us an email and we can set that up for you.
What is Socially Responsible Investing?
According to The Forum for Sustainable and Responsible Investment (USSIF), SRI (aka “ethical investing,” “responsible investing,” etc.) “is an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact.” SRI in equities usually involves either negative or positive screening to identify companies with better social, environmental, or governance track-records.
In layman’s terms, SRI is the same as normal investing; you’re just systematically cutting out the bad guys or overweighting the good guys, depending on your values.
Who should invest responsibly?
Most people have issues they care about, and there is no reason that investing should be an “ethics-free” area of your life. Quite the contrary! Investing is one of the primary ways in which you can shape the world.
Thanks to technological developments, customized ethical investing is now available to everyone at low cost.
How will ethical investing affect my financial performance?
Many people wonder if they have to sacrifice financial returns in order to invest in their values. This is actually false for a couple of reasons. First green companies in themselves don't underperform it's quite the opposite there's actually a raft of research on this now including for example; a recent meta-study by Deutsche Bank of 2200 empirical analyses which found that typically more sustainable, outperform their peers. It's not too surprising right, but then what happens when you start to build funds around these companies, well here you start to get some problems. First of all the traditional approach was just to lop off entire sectors like tobacco or firearms and not adjust the remaining portfolio. Now, this starts to hurt your diversification but second, and more generally you're now engaged in stock picking or active management which brings in human bias, error, and all kinds of company risk factors that have nothing to do with sustainability. The result is that you are most likely going to underperform and in fact, 99% of active managers underperform after you take out their fees.
OpenInvest solves this dilemma. With our technology advances, you can easily create a diversified broad market portfolio that fully reflects your personal values. You can even make changes anytime such as adding new social or environmental themes or divesting from an individual company with just a swipe. It's no problem because your portfolio will actually automatically rebalance in real time that aims to keep you tracking the performance at the market. No trade-offs necessary, no compromises, it's just better investing!
OpenInvest uses a strategy called passive investing. Passive investors build diversified portfolios with the goal of replicating market performance in the long run. Thanks to our breakthrough technology, even as you divest-invest from companies and practices, our proprietary algorithms automatically re-balance your portfolio to keep you diversified. Translation: With OpenInvest, you do not need to make financial sacrifices to invest with your values and use your voice.
Traditionally, some money managers advised that SRI may theoretically hurt performance by reducing the size/diversity of your portfolio. However, we are fortunate to now have over 40 years of empirical data on the actual performance of SRI strategies. The findings show that in general, SRI typically meets or outperforms the market.
For example, Deutsche Bank and partners conducted major meta-studies in 2012 and 2015, analyzing 100 and 2,200 existing academic research studies. They found that ESG (environmental, social, and governance) factors are “correlated with superior risk-adjusted returns at a securities level.” Deutsche Bank also found that companies with high scores for environmental and social governance (ESG) corporate social responsibility (CSR) have a lower cost of capital in equity and also typically exhibit market- and accounting-based outperformance.
Some studies find that companies with strong ESG fare better in economic downturns. Other research says that, in the long-term, performance equals out. For example, David Kathman, mutual fund analyst with Morningstar, states: “There will be good times when a social screening will hurt you and bad times when it will help you, but over time it doesn’t make a difference.” Other studies reach similar conclusions, including research by TIAA-CREF Asset Management, Envestnet PMC, GMI Ratings, Mercer, the United National Environment Programme Finance Initiative, Morgan Stanley, and more. Of course, investing is inherently risky, and historical performance does not necessarily predict future returns.
How does SRI fit in with my other investment strategies?
Socially responsible investing (SRI) is an approach that can be applied to any asset class, including both stocks and bonds. Thus, you can apply your principles to your entire portfolio. You never need to compromise between your ethics and your returns. OpenInvest will recommend a sound financial strategy for your whole portfolio. Then you can tweak according to your values. We are continuously striving to add additional ethical filters and recommendations across asset classes as data becomes available.
How is OpenInvest different from “green mutual funds” offered by groups like Calvert, Domini, etc.?
There are a variety of great mutual funds that screen companies based on social and environmental research. Some are great, and some aren’t. The challenge is that these funds are really geared for purchase by pension funds, foundations, and other big institutional investors. They have very high management fees which will hurt your financial performance. And they typically screen based on a standard basket of issues – alcohol, tobacco, firearms, pornography, etc. – rather than allowing customization according to what you care about most.
How big is the SRI market?
USSIF calculates that, as of 2014, the US SRI market is $6.57 trillion. That means that 1 in every 6 professionally managed dollars is under some kind of ethical mandate. This is a 76% increase over two years prior. Global SRI assets are $21.4 trillion, a 61% increase over two years prior, according to the GSIA (Global Sustainable Investments Alliance).
What kind of impact am I making?
The impact you make is multifaceted:
1. Sending signals. Think Change.org, but with money. Companies monitor the conversations around their products and brands, especially when their shareholders are the ones making statements.
2. Cost of capital. When you divest from a company, or refuse to invest in it, you reduce demand. That negatively impacts its share price, which in turn affects executive compensation and incentives and the company’s ability to attract additional talent, and makes it more difficult for the company to raise more funds.
3. Moral complicity. Responsible investing may have a marginal individual impact but it has a major collective effect, just like recycling or voting. For example, do you feel morally compelled to vote for the president of the United States? Yet your investment decisions probably have a much bigger impact (very few of us live in swing states, and we have an electoral college – sorry!). Anyone with strongly held values can breathe easier knowing that their nest egg was built in alignment with what is right.
4. Shareholder voting. When you own shares of a company, CEOs technically work for and report to you, via the board of directors, which is supposed to represent your interests. One big advantage of OpenInvest is that you actually have shareholder voting rights. In fact, you can vote in the shareholder resolutions that matter to you with a swipe! Learn more
Perhaps most importantly, your investments, and sharing with others, includes you in a movement dedicated to putting the power back in the hands of the actual owners of the economy – you and me. As our user base grows; as more data on social and environmental issues becomes readily available; as we add new issues to our platform; and as we join you with other like-minded users and communities; your voice becomes magnified and your impact increases.
How can I measure my impact?
OpenInvest is the only investment advisor where you can actually see your real-time environmental and social impact calculated right on your dashboard. Why? Because: A) We care; and B) Since we cut out a number of intermediaries, we actually know everything you own.
Right next to your financial performance, you can see how many lbs of CO2 you’ve saved, how many companies you own with female leadership, how many cigarettes you’ve avoided producing. We calculate this data from the ground up, both for your portfolio and the benchmark, and then your share of the difference is your impact! See an example image below…
What Is a Public Benefit Corporation?
A Public Benefit Corporation (PBC) is a legally-defined status in which our social and environmental mission is written into our legal charter, and our principles and practices are inscribed in our legal by-laws.
Companies such as Patagonia, Kickstarter, and Plum Organics, are part of the growing community of PBCs.
PBC status allows us to pursue public benefit as a legally-defined goal. For example, we can withhold distributing dividends to shareholders if we feel those funds are better off reinvested in social and environmental outcomes (even if that doesn’t generate a profit). Furthermore, it protects our mission in the event of future capital raises or leadership changes. In short, being a PBC bakes our mission into the DNA of the company, makes a public statement as such, and legally protects those goals.
How is a Public Benefit Corporation different than a B Corp?
Public Benefit Corporation status is similar to, but not the same as, being a “B Corp.” PBCs are a legal definition (at the time of writing, recognized in 30 states and the District of Columbia), and it is legally binding, whereas B Corp status is a voluntary certification maintained by the non-profit B-Lab. B Corp status also focuses on internal processes, such as employee wages and benefits. While those things are essential to PBCs as well, PBC status is generally more focused on the impacts your company’s products and services can have on the wider world. In general, however, PBCs and B Corps run in similar circles, collaborate, and share similar social and environmental values.
What is OpenInvest’s mission?
OpenInvest is a public benefit corporation with a mission to bring honesty and transparency to financial services making it easy for anyone to know exactly what they own and to help call the shots. To understand the future of investing that we're bringing about you need to understand more about the past so let me give you a very brief history of finance. Investing used to consist of a guy who owned something a ship or a factory. Now of course as the owner, he could tell it to pollute the river don't the pollute the river do whatever he wants because of course, he's in charge. Now over time, we had the development of the stock market and diversification which means that now you own hundreds or thousands of companies together with millions of other people and overall this is very positive because it channeled billions of dollars into the growth of the economy and allowed the middle class to participate in that growth.
However whenever you create distance between yourself and the things that you own you're going to have intermediaries and rent seekers who file in and in fact the average American investor she now has up to 16 intermediaries between her and the companies that she owns, and there are about a hundred fees in those layers. It's crazy, this is Wall Street and frankly most of them don't need to be there many are just pushing paper and worse yet while these folks are supposed to be serving your interests they more often serve the interests of the corporate managers from whom they collect big fees for other services like Investment Banking. They even sometimes get paid to unload junky products from those companies right into your investment portfolio. Now it's in all of their interests to keep finance feeling boring and complicated, so you don't ask questions about hey where's my money going or why am I paying so much. Just leave it to the experts they say. This is why we built open invest because today individual investors like you your friends your family we, directly and indirectly, own nearly 80 percent of US equities markets we literally own corporate America we're in charge the CEO's work for you they report to you they are awaiting your commands. So we use technology to knock down and replace intermediaries which first of all puts more money in your pocket instead of theirs. Second of all, it improves your portfolio by using software instead of self-interested humans to optimize and re-optimize your finances so you can hit your goals sooner. Finally, it gives you full transparency to exactly what you own, and it lets you call the shots in major management decisions. For example when there's an important shareholder or vote on something you care about whether it's equal rights, pollution, or other key issues you can just vote your shares with a swipe telling your CEO what to do.
Now, where's this all heading? Well for example in the future all the shareholders in Chevron can be having a real-time conversation about what their company should be doing. All the tools and the technology exists, and we have bundled it up and are putting it right in your pocket. In a sense, this is really a return to the first principles of Finance in which you know what you own, and you can call the shots except this time we're doing it together. This is the future of investing one that's open that's transparent, and that really serves you. This is OpenInvest.
Cofounder Joshua Levin explains our mission, vision, and how OpenInvest is reshaping finance.
OpenInvest’s mission is to make it easy for anyone to incorporate the things they care about into their investments, and to use their power as asset owners to actively shape the world.
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