Investing in hard assets like real estate, precious metals, and natural resources can be a robust strategy for diversifying your portfolio. However, as a socially responsible investor, it’s crucial to ensure that your investments align with your values and contribute positively to society and the environment. Here’s a guide on how to invest in hard assets while maintaining a socially responsible approach.
Understand Socially Responsible Investing (SRI) and Environmental, Social and Governance (ESG) Investing
Socially responsible investing (SRI) and Environmental, Social and Governance (ESG) investing are similar and often used interchangeably, but they have key differences. SRI involves screening a portfolio to exclude companies whose businesses involve operations that conflict with an investor’s values. Common exclusions include weapons, tobacco, alcohol, gambling, and fossil fuels. ESG investing, on the other hand, prioritizes companies trying to limit their negative societal impact or which provide beneficial solutions to society or both. For example, an oil and gas company may be considered an acceptable ESG investment if it is actively working to reduce emissions during operations, has a strong safety record, and is giving back to communities where it operates. As an SRI investor and/or ESG investor, you would prioritize companies and assets that do not conflict with your personal values and which demonstrate sustainable practices, ethical governance, and a positive impact on society.
1. Real Estate
Real estate is a tangible asset that can provide passive income and capital appreciation. Below are some strategies to consider for those who wish to invest responsibly in real estate:
- Net-Zero Carbon Commitment and Green Technology: Look for properties that are committed to net-zero carbon emissions (also known as green leases). These properties may include LEED-certifications1 or other sustainability certifications such as WELL. LEED certification provides a framework for a healthy, highly efficient, and cost-saving building while WELL buildings incorporate more than 100 features across 10 areas: air, water, nourishment, light, movement, thermal comfort, sound, materials, mind and community.
- Affordable Housing: Consider investing in projects that provide affordable housing solutions. Housing affordability in the United States is currently at an all-time low, and more than half of all renters are spending at least 30% of their income on rent. Mixed-use developments commit a percentage of space to affordable housing while still offering commercial and communal space. These types of developments are a good starting point when investing in affordable housing.
- Community Impact: Invest in properties that contribute positively to their local communities. Developments that include community centers, parks, and local businesses have strong community impact and can be a great way for socially-minded investors to gain exposure to the real estate sector while also benefiting society.
2. Precious Metals
Precious metals like gold and silver are often considered safe-haven assets that can provide valuable portfolio diversification effects. Here are some things to look for when investing in precious metals as a socially responsible investor:
- Transparent Supply Chains: Invest in companies that provide easily traced origins of the metals they invest in or mine. Transparent supply chains ensure that precious metals are not sourced from conflict zones or operations with exploitative conditions.
- Environmental Focus: Consider investing in companies that focus on environmentally conscious activities . Practices such as recycling, reducing carbon emissions, and preserving biodiversity help minimize pollution and ecological damage while promoting long-term preservation of other resources
- Human Rights: Prioritize companies that have established policies to prevent child labor, forced labor, and other abuses of human rights. Not only does this contribute to a more just and equitable industry, but respecting human rights also aids in safeguarding vulnerable communities.
3. Natural Resources
Investing in natural resources such as timber, water, and agriculture can provide diversification and potential returns. The following are some ways to responsibly invest in natural resources:
- Sustainable Forestry: Invest in timber companies that practice sustainable forestry, which involves harvesting trees in a way that maintains the forest’s biodiversity and productivity.
- Water Rights: Ensure that your investments in water resources promote sustainable and equitable access to water. Avoid companies involved in water privatization that may harm local communities.
- Organic Farming: Invest in crop production that employs sustainable and organic practices and inputs for soil fertility (compost, animal manures, and green manures), seeds and planting stock, crop rotation and pest control, and weed and disease management. As for livestock, pay close attention to living conditions, grazing techniques (pastures), and the origin of the animal. These methods can be better for the environment and animal welfare while promoting healthier food production
4. Renewable Energy
Investing in renewable energy sources like solar, wind, and hydroelectric power is a direct way to support environmental sustainability. Renewable energy projects reduce reliance on fossil fuels and can help combat climate change.
- Solar Farms: Invest in solar energy companies or funds that develop and manage solar farms.
- Wind Power: Look for opportunities in wind energy projects that provide clean electricity to communities.
- Green Bonds: Consider green bonds, which are designed to fund projects that have positive environmental benefits, including renewable energy initiatives.
Conduct Thorough Research
Before making any investment, it’s essential to conduct thorough research. Look into the company’s or project’s sustainability practices, labor conditions, and overall impact on the environment and society. Use resources like the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) to assess the sustainability reports of companies.
Use SRI Funds and ETFs
One way to simplify the process of investing responsibly in hard assets is to use SRI-focused mutual funds and ETFs. These funds are managed with a focus on sustainability and can provide exposure to a diversified portfolio of hard assets.
Investing in hard assets as a socially responsible investor or with a strong focus on ESG factors requires a commitment to aligning your financial goals with your ethical values. By focusing on sustainability, ethical practices, and positive community impact, you can build a portfolio that not only may ensure your financial stability but also contributes to a better world. Remember to conduct thorough research, prioritize transparency, and consult with an experienced advisor.
1 LEED – Leadership in Energy and Environmental Design
This article is prepared by Pekin Hardy Strauss, Inc. (“Pekin Hardy,” dba Pekin Hardy Strauss Wealth Management) for informational purposes only and is not intended as an offer or solicitation for business. The information and data in this article does not constitute legal, tax, accounting, investment, or other professional advice. The views expressed are those of the author(s) as of the date of publication of this article and are subject to change at any time due to changes in market or economic conditions. Pekin Hardy cannot assure that the strategies discussed herein will outperform any other investment strategy in the future. Because the applications of ESG (environmental, social, governance) or Socially Responsible Investing (SRI) screens as part of an impact investing program, certain securities may be eliminated as investments. As such, it may cause performance to behave either positively or negatively compared to strategies that do not apply such screens.
