New investment guidelines can be complicated.
Socially Responsible Investment (SRI), Environmental, Social, and Governance (ESG) investment, Impact Investing, etc.
It can become confusing.
Thankfully, Martin Kremenstein, Head of Retirement Products at Nuveen Investments sat down with Real Money's Kevin Curran to explain the ever more popular products.
Martin explained that the guidelines for socially responsible investments in the past led to a largely exclusionary model, based on eliminating sin stocks and often energy stocks.
"SRI is really the old way of doing [responsible investing]," he explained. "That could lead to underperformance and also unbalanced portfolios."
Kremenstein said that the new model, based around the three factors spelled out in ESG, is much more focused. Investments are selected by comparing like for like companies through a "best in class" grading system.
"I'm not comparing to compare Intel (INTC - Get Report) to Halliburton (HAL - Get Report) , I'm going to compare Halliburton to Schlumberger (SLB - Get Report) and Intel to Nvidia (NVDA - Get Report) ," he explained.
By making sure that investors can choose best in class companies, they are offered the ability to invest in a balanced manner while not sacrificing their principles.
Further, Kremenstein said that the more balanced method ad a focus on governance eases concerns on sacrificing returns for the principled investment stance.
"Historically, responsible investing has been associated with poor performance, I think that's very much down to the old SRI methodology," he lamented. "[ESG scores] are really another way of looking for well-run companies."
He added that impact investing, an even newer frontier in responsible investing, moves a step further and looks to accomplish specific goals.
Investing with a conscience might get easier as well, as major institutional investors like the $351 billion California Public Employees Retirement System throws its weight around in an effort to establish an SEC rule for mandatory disclosure on ESG compliance.
"The fact of the matter is that long term, ESG is going to cease to be," he said. "It's going to just be part of the natural way of looking at stocks from a fundamental perspective."
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