Charitable Giving

What You Need to Know About Socially Responsible Investing

Do you eat organic? Shop locally? Nowadays, where we put our money says a lot about us—especially when it comes to investing.

Today, more than $8.7 trillion in the U.S. is invested in responsible strategies, but despite this growing interest, there’s still quite a bit of ambiguity around the topic. Like how exactly are responsible investments defined? Would they affect my returns? Should I use this approach for my Giving Fund? 

To help sort things out, we turned to our go-to expert with over than 20 years of experience in the field, Amy O’Brien, Global Head of Responsible Investing at Nuveen, a TIAA company.

TIAA Charitable: What's the difference between SRI, ESG, and impact investments? How do they relate to responsible investing?

Amy O'Brien: People often use these terms interchangeably and, sometimes, incorrectly. The confusion stems, in part, from how responsible investing has evolved. The original term was socially responsible investments (SRI). It referred to funds that excluded investments in companies associated with specific activities, such as tobacco or firearms manufacturing.

Amy O'Brien, Global Head of Responsible Investing at Nuveen, a TIAA company

Newer strategies tend to be more comprehensive. Traditional exclusionary screening still occurs. But today, when we talk about SRI, we are referring to funds that include environmental, social, and governance (ESG) criteria. These ESG-focused funds typically favor companies whose lines of business, policies, and practices reflect a commitment to sustainability and good governance.

The goal of impact investments is to generate measurable social and environmental impact along with financial return. Many investors care about ESG criteria, but they care even more about whether the criteria are making a difference.

At TIAA, we tend to use the umbrella term responsible investing. In addition to covering SRI, ESG, and impact investments, “responsible investing” reflects TIAA’s view that this is a philosophy that can apply to all investment classes.

TC: What should I look for when choosing responsible investments?

AO: Consider evaluating responsible investments the same way you would any others—by looking at performance, expenses, and how well the investments match your goals. Many of these funds have long track records that you can review.

There are still a lot of myths about responsible investing. Some investors, for example, believe that they should expect lower returns—or that they will face higher expenses. At TIAA, we have never agreed that investors who are motivated by values have to give up something in return. In fact, an increasing body of evidence shows many of these funds are smart additions to a diversified portfolio. They can help reduce risk and enhance long-term performance.

 “In addition to competitive returns, responsible investments seek to make a positive impact on the environment and society.

— Amy O’Brien

TC: What place do responsible investments have in a portfolio?

AO: That depends on investment objectives and comfort with different types of funds. Some people do focus exclusively on responsible investments. That’s an option because there are a lot of viable, competitive, responsible investment options, and one can design a diversified portfolio around them. There are socially responsible bond funds, equity funds, and international equity funds—with goals, time frames, and risk levels comparable to traditional funds in the same asset classes. The difference is that, in addition to competitive returns, responsible investments seek to make a positive impact on the environment and society.

Many people add responsible investments gradually, as part of routine portfolio building. They start by identifying the funds that meet their investment objectives and—often with help from their advisor—dig a little deeper to unpack the ESG intentions. As their comfort level increases, so does their portfolio’s exposure to these types of funds.

TC: Can responsible investments really make a difference?

AO: This question gets to the heart of the matter, and it’s why many of us in this field have put a laser focus on measuring impact. The ESG world has matured and is moving toward a time when many funds will include ESG criteria. Data on impact—such as which renewable energy investments helped reduce carbon emissions or took more cars off the road—will make the case that these funds do make an impact.

TC: So, what’s the connection between responsible investing and charitable giving?

AO: If you’re investing money that ultimately will be used for charitable purposes, responsible investing can complement a commitment to philanthropy and support a family legacy of giving back.

Take the TIAA Charitable Giving Fund, which is a donor-advised fund. With a Giving Fund, your charitable donations are invested while you decide what charities you wish your Giving Fund to support. All investment growth is tax-free, which can make more money available to grant to your favorite charities. TIAA Charitable was founded with a strong commitment to responsible investing, and its investment options include five responsible investment pools: Social Choice Income, Social Choice Conservative, Social Choice Moderate, Social Choice Growth, and Social Choice Aggressive. A Social Choice Low Carbon Equity Fund is also available.

These six socially responsible investment options illustrate a point I made earlier—that responsible investments span different asset classes and have different investment objectives. They also can reflect your values and, with a Giving Fund, connect those values and your charitable impact.

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Contributions to the Giving Fund are irrevocable. All recommendations from donors are subject to review and approval by TIAA Charitable.

TIAA Charitable does not provide tax advice. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.

TIAA Charitable is the brand name for an independent public charity that maintains a donor-advised fund program. The TIAA name is a registered mark of Teachers Insurance of America and is used by TIAA Charitable pursuant to a license.