Conscience - Based Investing

G. Benjamin Bingham lets one thing guide the investments he recommends to clients — his conscience.

“The standard we set for ourselves is to achieve market-rate returns … while having as much of a positive impact on society and our environment as we can,” Bingham recently told The Suit Magazine. Bingham’s firm, 3Sisters Sustainable Management, LLC, practices socially responsible investing that prioritizes aligning clients’ values to assets.

Socially responsible investing considers the impact of an investment on the environment or society — for example, big oil companies are typically “out” along with defense contractors. Often called “ESG” for environmental, social, and corporate governance investing, this brand of asset allocation is becoming more common among large financial firms and a cottage industry of consultants have sprung up to advise on which investments make the cut.

Socially responsible investors usually pursue one of two options. They either invest in socially responsible companies or products, or they put their money into companies that create a negative social or environmental impact, and then work to change them from within. Activist investors pursue the latter option.

Bingham, who’s written a book on the subject entitled Making Money Matter: Impact Investing to Change the World, pointed out that socially responsible does not mean a lower return. A meta-analysis of 100 studies on the effect of ESG by Deutsche Bank found that just 2 percent of the reports concluded socially responsible investing hurts returns. In contrast, more than 50 percent of the studies Deutsche Bank considered showed ESG investing may boost returns (the remainder showed no difference).

3Sisters helps clients invest sustainably through its Scarab Funds, which offer short duration microfinance, high yield private debt, a diversified real asset fund, public impact stocks and a developing series of private equity strategies. These diversified funds serve philanthropic and traditional advisors whose clients who want to see strong returns, and high social impact, within their risk profiles, Bingham said.

Bingham’s reliance on conscience made traditional finance work difficult, he said. At Citigroup in 2006, he “couldn’t believe” the firm’s attitude toward mortgages, and saw hard times ahead. He left the firm for an RIA where he could match client values to investments — and his portfolios only lost 5 percent, on average, during the 2008 crisis.

Investing off “the street” also complicated protecting clients, he said. Bingham described Hansen’s Natural Soda as one of his best investments in the early 2000s; the company wasn’t tracked by analysts, but grew 2000 percent in two years. It took considerable convincing to get Legg Mason to approve putting Hansen’s in clients’ portfolios, Bingham said, adding that it’s an example of how powerful analysts and the “Wall Street Universe” are.

The prevalence of ESG investing will only grow as a new generation of investors consider their conscience before sinking money into an asset, Bingham said.
“I would say the whole market is thinking about this right now. It’s a multi-trillion dollar market and there’s multiple opportunities for innovation,” he said. 

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