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Socially responsible investing...in bonds

Created date

May 10th, 2016

You’re probably familiar with socially responsible investing (SRI)—putting money into stocks that are aligned with your values. But, did you know that you can also use a socially responsible approach to investing in bonds?

Benjamin Bailey, a fixed-income investment manager with Everence Financial (everence.com) in Indiana, says his firm first became interested in bonds with positive social impacts back in 2006 when they discovered a bond that was used to provide immunizations to children in developing countries. In 2009, the World Bank launched what is recognized as the first “green bond,” to raise money for environmental initiatives like wind farms, hybrid autos, and climate change mitigation, to name a few. 

Green and other social impact bonds appeal to investors who want to know that their money is being used for good. And, Bailey says these kinds of bonds also make sense from a financial perspective.

“In our SRI fund, we have, have been able to outperform the benchmark after expenses,” he says. “So, you don’t necessarily have to give up return, or at least the return will be very close to the index, and you can also have a positive impact.”

Marked growth

Matt Blume, a green bond expert with Pekin Singer Strauss Asset Management (pekinsinger.com), says the green bond market has grown from issuances of $4 billion in 2010 to over $37 billion issued in 2014. “The market is quickly becoming more mainstream, and many companies are finding that there are both financial and reputational benefits in issuing green bonds,” he says.

Indeed, big companies like Apple, Morgan Stanley, and Bank of America have issued green bonds. Bailey says Apple uses green bond funds to work toward its target of reaching 100% renewable energy for its operations—a worthy goal that Bailey says doesn’t carry much risk for investors. 

“With this Apple bond, you know where the money is going,” he says. “And, you have Apple itself backing it, so if one of the solar farms would go bad, there wouldn’t be any impact on the bond. The green bond itself isn’t any riskier than their normal bonds, so it’s kind of a win/win.”

Robert Johnson, Ph.D., president and CEO of The American College of Financial Services (theamericancollege.edu), says he expects socially responsible investing, in both stocks and bonds, to continue to grow. And, you might thank your grandchildren for that.

“While SRI has been around for decades, there seems to be a surge of interest in it,” Johnson says. “For all of the criticisms the Millennial generation receives, the savings rate for Millennials is higher than previous generations. As socially conscious Millennials commit more funds to these types of investments, it could drive up the prices of these companies and raise returns.”

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