- Socially sustainable investing generally encompasses ethically or socially conscious themes, such as fair treatment for workers and minorities.
- While there are relatively few funds aimed at addressing social issues, like racial justice or economic inequality, that is beginning to change.
- Fidelity has developed 4 unique mindsets that can help investors determine the approach to socially sustainable investing that best suits their personality and goals.
2021 was a significant year for sustainable investing, as shareholders of major companies increasingly pushed for firmer commitments to human rights and social justice.
According to the Sustainable Investments Institute, 34 ESG (environmental, social, and corporate governance) proposals received majority support among shareholders last year, up from 21 the year before. At IBM, more than 94% of shareholders supported a proposal asking for greater insight into the company's diversity, equity, and inclusion programs. At Wendy's, a proposal to ensure accurate reporting on worker safety during the pandemic earned more than 95% support. At Goldman Sachs, a push to do away with Goldman's policy of forced arbitration and confidentiality for sexual harassment complaints just narrowly missed passing—but the campaign was so effective it led the company to reverse the policy anyway.
Investors are awakening to their ability to shape the future of our economy and our society and becoming bolder in how they use their wealth to build a better future for themselves, their families, and their communities. At Fidelity, our goal as investment stewards is to provide clear guidance on what ESG factors we believe are material to each company and to engage and vote accordingly. We've developed a decision-making framework to ensure that the proposals we are voting on are financially material, relevant, and provide valuable information to shareholders. (ESG-specific investment strategies apply only to funds in which ESG criteria are supported by specific language in the respective fund prospectuses.)
If you're curious about how to invest in companies that foster more equitable relationships between their customers, employees, suppliers, and the communities they operate in, it's important to understand that there's more than one way to go about it—and the method you choose will depend a lot on your personal priorities and motivations.
What makes a company socially sustainable?
While each investor will have their own perspective on what constitutes social sustainability, it generally encompasses a few key guidelines around ethical or socially conscious themes that are thought to make for a more equitable and respectful society:
These are not just superficial, feel-good factors. They can be "financially material issues," according to the Sustainability Accounting Standards Board, and, depending on the industry, are likely to have a meaningful impact on the financial condition or operating performance of a company.1 At Fidelity, we believe that robust ESG practices can be critical to an investment's long-term success. Through the lens of a skilled active manager, the analysis of ESG factors can provide an expanded view into the durability of a company's competitive advantage and earnings growth, as well as potential business model risks. A historical and forward-looking ESG assessment can help confirm if company management is effectively addressing the relevant intermediate- and long-term systematic risks that may not be uncovered when only relying on an investment's quantitative earnings model.
In particular, our perspective is that companies that prioritize health and safety, workplace diversity, retention, and an inclusive corporate culture are more likely to attract and retain high-value talent. Therefore, we believe a company's diversity and inclusion efforts serve as a proxy for good human capital management. We believe that the preponderance of empirical evidence, as well as our own research observations, indicate that companies with more diverse workforces are better positioned to outperform their peers.
A joint study by NYU's Stern Center for Sustainable Business and Rockefeller Asset Management analyzed more than 1,000 studies on ESG performance and concluded that corporate ESG initiatives appear to drive better financial performance, increase innovation, and improve management of risk.2
What's your motivation?
Through extensive interviews with investors and their advisors, Fidelity has developed 4 unique mindsets that can help you determine the sustainable investment strategy that best fits your personality and goals.
"Your approach depends on your objectives and what's motivating you," says Rick Smyers, managing director of Fidelity ESG Pro℠, a software platform that helps financial advisors build sustainable portfolios for clients. For instance, expression seekers may be interested in funds run by activist managers that encourage transformational change at the companies they invest in. Impact or alignment seekers could employ thematic investing techniques to better personalize their portfolio and feel confident that they are contributing to a good cause while pursuing their personal goals. Security seekers who don't have an affinity for any particular cause may be content to simply use ESG ratings in concert with company fundamentals because they believe this will help them identify companies may be best prepared to adapt to a changing economy.
Finding the right fit for you
While it may be relatively easy to find mutual funds or ETFs focused on the environmental side of ESG, there are fewer options for addressing social issues, like racial justice or economic inequality. However, Smyers says that interest in these types of investments has been increasing as these topics have become more prominent in the media. "As more people become aware of these issues, I would expect it to become a more important theme over the long haul." In just the last few years, "minority empowerment" funds that invest solely in companies with strong racial and ethnic diversity policies or that seek to address the affordable housing crisis in traditionally underserved communities have launched in an effort to address the concerns of reform-minded investors.
Fidelity's Mutual Fund Evaluator and ETF Screener provide preset screens for sustainable funds, and the stock screenerLog In Required allows you to use the MSCI Overall Environmental, Social & Governance Rating to evaluate equities. If you can't find an investment that fits your specific interests, you may want to consider taking a broad-based approach.
It's important to remember that investing based on ESG factors may lead you to forgo certain investment opportunities available to strategies that do not use such criteria. When incorporating ESG factors into your decision-making process, be sure to consider how it may affect your investment goals and how it could impact your portfolio overall.
A purpose-driven portfolio
Investing for social good can provide you with opportunities to leverage the power of capital to create a fairer, more equitable future. And while it's nice to know that one may not necessarily need to forego competitive returns to do so, having your investments and your values in alignment can give you the confidence to stay the course amid uncertainty.
Information about each fund's holdings may be found by clicking its ticker symbol.
- Fidelity® Sustainable U.S. Equity Fund (
- Fidelity® U.S. Sustainability Index Fund (
- Fidelity® International Sustainability Index Fund (
- Fidelity® Sustainability Bond Index Fund (
- Fidelity® Sustainable International Equity Fund (
- Fidelity® Sustainable Emerging Markets Equity Fund (
- Fidelity® Sustainable Multi-Asset Fund (
Information about each fund's holdings may be found by clicking its ticker symbol.
- Fidelity® Sustainability U.S. Equity ETF (
- Fidelity® Sustainable High Yield ETF (
* This ETF is different from traditional ETFs. Traditional ETFs tell the public what assets they hold each day. This ETF will not. This may create additional risks for your investment. For example: You may have to pay more money to trade the ETF's shares. This ETF will provide less information to traders, who tend to charge more for trades when they have less information. The price you pay to buy ETF shares on an exchange may not match the value of the ETF's portfolio. The same is true when you sell shares. These price differences may be greater for this ETF compared to other ETFs because it provides less information to traders. These additional risks may be even greater in bad or uncertain market conditions. The ETF will publish on its website each day a "Tracking Basket" designed to help trading in shares of the ETF. While the Tracking Basket includes some of the ETF's holdings, it is not the ETF's actual portfolio. The differences between this ETF and other ETFs may also have advantages. By keeping certain information about the ETF secret, this ETF may face less risk that other traders can predict or copy its investment strategy. This may improve the ETF's performance. If other traders are able to copy or predict the ETF's investment strategy, however, this may hurt the ETF's performance. For additional information regarding the unique attributes and risks of the ETF, see the disclosure below and the Principal Investment Risks section of the prospectus.
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