Issue 23: 2013


Values-Based Investing at a Tipping Point

Around conference tables and dinner tables, conversations about social investing are shifting to include the ways corporate social responsibility can create value.

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For individuals seeking to invest in line with their social values, it’s a whole new world. Until recently, socially responsible investing (SRI) meant avoiding companies in certain industries — an exclusionary practice that can lead to a lack of diversification and hinder performance.

But lately a new approach, dubbed values-based investing (VBI), has been emerging, and it features a more positive and inclusionary methodology.

A small but growing group of investment strategies is forgoing so-called negative screening and favoring instead this broad, more inclusionary approach to selecting securities. Our own strategy, called Socially Innovative Investing (S2I), for example, involves scoring companies based on more than 400 distinct characteristics that we believe are a reflection of thoughtful management and potential sources of value. Areas we examine include pay parity, gender and diversity considerations, social justice and environmental stewardship, among others.

When viewed through the lens of the Harvard Business School theory of shared value, practices such as these reflect good corporate citizenship but may also serve as opportunities for competitive differentiation. Put another way, social responsibility may make companies more valuable.



This link between social values and corporate performance, though not assured, does make sense. Better product and operational safety standards can make expensive lawsuits and fines less likely. A more accountable company can, in turn, help foster a solid reputation in the marketplace and can appeal to investors as well as consumers. (In the S2I framework, think of this as managing operational, litigational and reputational risk.)


The notion of a link between social and financial performance is still relatively new, but a small number of VBI-focused investment strategies are including both social criteria and market fundamentals to increase the potential for outsized investment returns. The sort of complementary, performance-related factors they seek might include strong investment fundamentals, a candid and experienced management, and an industry in an up cycle, among others. The interaction between these social and fundamental factors is an important part of U.S. Trust’s S2I strategy.


The rising popularity of VBI is evident in the numbers. According to US SIF, a nonprofit association focused on sustainable and responsible investment, U.S. assets committed to responsible investing reached $3.74 trillion in 2012, up about 20% from 2010. Another indicator is a rise in the number of investment institutions worldwide that have signed on to the United Nations Principles for Responsible Investment, an initiative focused on environmental, social and corporate governance (ESG) issues. In 2006 there were six signatories; in 2012, 1,000.


With investor interest in VBI clearly on the rise, and with a more accurate and in-depth assessment of corporate social responsibility now possible, there has been a virtuous cycle. Corporations are reducing their carbon footprint or improving the diversity of their boards and are seeing direct bottom-line impact.

As if to acknowledge the effect that consumer perceptions can have on their market valuations, 53% of the companies in Standard & Poor’s index of 500 large cap stocks published sustainability reports in 2011, up from just 19% in 2010, according to the Governance and Accountability Institute.


We believe that the importance of socially responsible and values-based investing will continue to be driven by client demand. In response to this growth, and to provide a complement for the broad-based approach of our Socially Innovative Investing strategy, we recently launched four new strategies with focus on specific areas of corporate social responsibility (see “U.S. Trust's Values-Based Investment Strategies” below). If you’d like more information on any of our VBI strategies, please contact your U.S. Trust advisor.

U.S. Trust's Values-Based Investment Strategies Click to expand
U.S. Trust's Values-Based Investment Strategies
  • Socially Innovative Investing, U.S. Trust’s first VBI strategy, scores companies based on more than 400 characteristics.
  • Women & Girls Equality Strategy reviews corporate practices relating to equality, social justice, antidiscrimination and global labor practices, and negative media portrayals of women and girls. (NEW)
  • Human Rights & Recognition examines corporate practices as they relate to equality, social justice, antidiscrimination and lesbian, gay, bisexual and transgender (LGBT) community support. (NEW)
  • Environmental Stewardship & Sustainability evaluates a corporation’s environmental impact and policies on climate change. (NEW)
  • Religious Voice & Values reviews corporate management practices relating to charity, social justice, equality and other religious principles. (NEW)


Projections made may not come to pass due to market conditions and fluctuations.

Investing involves risk. There is always the potential of losing money when you invest in securities.

Past performance is no guarantee of future results. Asset allocation, diversification and rebalancing do not assure a profit or protect against loss in declining markets.

Always consult with your independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy.


Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

Stocks of small and mid cap companies pose special risks, including possible illiquidity and greater price volatility, than stocks of larger, more established companies.

International Investing
International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards, and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility.