Finance for physicians: Is socially responsible investing right for you?

By Naveed Saleh, MD, MS | Fact-checked by Barbara Bekiesz
Published September 4, 2023

Key Takeaways

  • Socially responsible investing may appeal to physicians interested in social, ethical, or moral causes.

  • There are a variety of socially responsible investment vehicles, including index funds and mutual funds.

  • Physicians interested in this type of investing must perform a cost-benefit analysis, as these types of providers tend to charge higher fees. Regardless, many physicians find peace of mind by investing in line with their value systems.

Physicians live a professional life steeped in ethics, in service of patients and their needs. It’s admirable that doctors might want to extend this perspective to the world of investing. This is done in the form of socially responsible investing, or environmental, social, and governance (ESG) investing.[]

ESG investing protocol screens investments based on corporate policies and encourages companies to act responsibly, and it has become increasingly popular in recent years, according to Investopedia.[]

To learn more about this social-conscious approach to investing, MDLinx spoke with Anjali Jariwala, CPA, CFP, of FIT Advisors, and Anthony Watson, CFA, CFP, of Thrive Retirement Specialists.

AKA 'impact' investing

Socially responsible investing excludes companies, sectors, or even whole countries that don’t align with certain social or moral values. 

“Impact investing” is similar to sustainable investing, according to Jariwala. Sustainable investing focuses on companies that are taking the lead against climate change and environmental destruction while promoting corporate responsibility in light of these cultural impacts.

Together, these interests fall under the umbrella of impact investing, and millennials are leading the charge.

“As millennials are building wealth, impact investing has gained more popularity," Jariwala said. "The investments in these categories are not only providing as good or better returns, but there are many more options that individuals can choose from."

"Physicians may be interested in adding an impact investing focus to their portfolio to align their money with what is truly important to them."

Anjali Jariwala, CPA, CFP, of FIT Advisors

How to make your own impact

One limitation of impact investing is that there is a gap in data, according to Jariwala.

“The reporting around impact investing is not as robust, so it can be hard to decipher which investment is going to provide the expected returns and meet the impact investing criteria you've set. You can start with reading through the prospectus to get a better understanding of how the investment works,” she said.

Jariwala points to a few ways to get started, including investing in an index fund that meets certain criteria, whether it is social responsibility or sustainable investing.

Related: Expert take: Why index funds are a smart investment for physicians

“I use sustainable funds [...] for clients who would like their investment dollars to make an impact with climate change. Once you are better versed in impact investing, you can find investments that are much more specific to what is truly important. For example, investing in funds that focus on social justice,” she explained. 

Another option is to invest in Certified-B Corporations; this certification entails a stringent process that measures a company's cumulative social and environmental impact. 

Watson explained that ESG was coined in the 1960s as a way for investors to avoid stocks associated with industries such as tobacco production.

ESG investing has evolved ever since, and now offers a variety of opportunities for all types of investors, including those with religious interests.

“A great example of ESG investing being a perfect fit is Muslims desiring to adhere to Islamic finance principles that require avoiding investments in businesses such as liquor, pornography, gambling, and banks,” said Watson.

“They also must avoid bonds and other conventional fixed-income securities. Adhering to these principles would have made building a diversified portfolio very difficult, but now, ESG mutual funds are available that invest according to these principles,” he added.

Is socially responsible investing worth it?

Anybody interested in ESG must perform a cost-benefit analysis, per Watson. 

“Some people feel very strongly about certain issues and are more than willing to incur the extra investment expense to have peace of mind,” he explained.

However, he does have concerns about the veracity of some claims made by investments in the space.

“ESG investment providers are trying to make the case that companies following certain ESG factors tend to outperform their peers and, thus, the broader market. However, I have not seen any solid evidence substantiating this claim. In fact, I am somewhat suspicious of the claim, because ESG investment providers tend to charge higher investment fees,” he said.

Others have voiced similar concerns. For example, although the Investopedia writers note that ESG investing can help investors avoid companies engaged in risky or unethical practices, they also have this to say: “The rapid growth of ESG investment funds in recent years has led to claims that companies have been insincere or misleading in touting their ESG accomplishments.”

What this means for you

Socially responsible investing may go by many names, but they all follow the same underlying principles: to exclude investments that don’t recapitulate certain moral or ethical values. Physicians can follow a variety of investment opportunities. Options include index funds screened for defined parameters or Certified-B Corporations. The data surrounding ESG is somewhat opaque, and there is concern about the returns of these investments, per the experts. Therefore, a cost-benefit analysis should carefully be considered. 

Read Next: Expert insights: How doctors should prepare financially for a possible depression

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