Do you know how to Invest with your Values 🌿?
Welcome to the hot, sticky, summer season ☀️. In New England, we work hard to arrive at this season. Personally, I love being able to sit outside on the patio in the early morning, reading the paper, drinking my coffee, and watching the wildlife. If I’m lucky, some hummingbirds zoom by my head to the feeder.
In this month’s blog, I’m introducing the concept of ESG investing – or rather, Environmental, Social and Governance investing.
By way of introduction, did you know, that not only can you LIVE according to the values that are important to you, but you can also INVEST according to those values? This is what ESG (environmental 🌿, social 🤝 , and governance 👩🏿⚖️) investing is all about – investing your hard-earned assets according to your values, so that your money can also support the companies that serve their customers in harmony with how you would want to be treated yourself.
But in order to proceed, we have to take a step backwards to explain the genesis of this type of investing. Decades ago, when you wanted to invest responsibly, otherwise known as SRI or Socially Responsible Investing, you would simply be avoiding investments in what were called the SIN stocks, or stocks that supported tobacco, guns, gambling and alcohol.
More recently, the industry has turned its attention to a more proactive form of investing responsibly, termed ESG, or Environmental, Social, and Governance investing. This type of investing actively seeks companies that are stewards of the tenets behind each letter.
E = Environmental companies
Environmental 🌻 companies that are found to be environmentally friendly typically aim to create business in ways that are respectful and supportive of the environment. They tend to focus especially on reducing their carbon footprint, addressing water scarcity, and mitigating pollution and waste. Sometimes they are green due to their industry or product, such as solar power companies, while other times they purchase carbon offsets to compensate for energy usage.
S = Social companies
Companies that score high on the Social rating scale, tend to be proactively supportive of the workplace and supply chain. Are working conditions safe 👷🏽? Do employees feel respected? Is there a commitment to ensuring workers have appropriate work environments? Does the company play a positive role in the communities they are present in?
G = Governance companies.
How do the companies we can invest in stack up in terms of their corporate governance? Are the leaders and Board members comprised of diverse backgrounds – women, LGBTQIA+, different religions, cultures and beliefs? Unfortunately, when we really dive into the upper echelons of public companies, you’ll find many who have very homogenous leadership in place. However, there are many studies that point to diversity in the workforce leading to better management decisions, and better-run companies all around.
This is one area I know all too much about. I know that in my industry of Certified Financial Planning 🏦 professionals, women represent a meager 23% only. And if we take a look at black representation, we will only find a paltry 1.8% are Certified Financial Planning professionals. My industry pays a lot of lip service to these statistics, and occasionally you’ll see some good attempts at increasing representation, however, in reality this hasn’t changed much since I started in financial services over 2 decades ago, which I find discouraging 😥. (source: CFP board, 2022)
Now let’s go one step further.
Have you heard of the United Nations’ Sustainable Development Goals? Many ESG companies are also trying to respect the United Nations’ Sustainable Development Goals .
The United Nations developed these goals, with a target date of achieving progress of 2030- which is so soon! I won’t list all of them (there are 17) here – but here are some of my favorite examples:
1. No poverty 😥. More than 700 million people worldwide still live in poverty. Commit to donating what you don’t use, and support those in need.
5. Gender equality 👩👩👦. We have made strides in the US supporting this, but there is still MUCH progress to be made. And our recent crises has unfortunately, pushed much of the progress backwards, as more women are sacrificing careers to care for loved ones.
13. Climate action 🌎. Global CO2 emissions have increased 50% since 1990. What can WE do to play our part in helping Mother Earth stay healthy for us and our future generations?
14. Life below water 🌊. Billions of people worldwide rely on our waterways for their livelihood. We should carefully maintain our usage, and stop using plastic bags which often end up polluting our water. I do encourage you to learn more here, and not only do your part to respect and abide by these guidelines, but to also think about the companies that you purchase from, and invest in, and try to understand their roles in achieving these important goals.
There is also another step in our “How can we invest with our values?” mission, and we move beyond SRI, and ESG, to Impact 🙏🏼 Investing.
Impact investing seeks to not only achieve investment returns, but to also understand the actual impact your dollars are having in a particular area. One example of this type of investing is called Community Development Financial Institution. They are typically found in your backyard, and support local projects such as affordable housing and economic development in communities. You can find many more examples of Impact Investing if you just look!
And lastly, while we can INVEST according to our values, there are also many vehicles that allow us to GIVE and support our favorite charities 🐕🦺🌎 and philanthropic 🤝intentions.
This is an area where some clients have a firm grip on what is important for them to support with charitable donations of time or money. Other clients may not have ever thought about this, or know where to start. I love discussing your values, and what is important to you and your family. We will work together to fit your values and goals into your overall financial plan. And finally, we will determine together the appropriate vehicle for your situation.
One popular example of a gifting vehicle, which can also positively impact client’s tax situation in a given year, is called a Donor Advised Fund (DAF). This vehicle offers tax deductions during the year you contribute funds, but then affords you more time to determine which public charities you would like to direct the funds to. They have seen a rise in popularity over the last several years. And, depending on which provider we use, we also have the possibility to invest responsibly within the DAF.
In closing, if this is a space where you’d like to learn more, I’d love to partner with you to understand your values and strive to implement both an investing and a philanthropic plan that you are excited about.
Some of my clients have never heard of these terms, while others come seeking out investing guidance in these areas. It is important for me, YOUR ADVISOR, to understand your values 🌻🐕🦺, and help create an investment program that not only fits into your overall financial plan, but also respects your values, and what is important to you. Please contact me to learn more.
If you’d like to learn more about how I can assist you with your financial situation or goals, please reach out to schedule a consultation, and Happy Summer🍒!
✌🏿Peace and ❤️ love,
All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
While donor advised funds have many advantages, some disadvantages to be aware of include but are not limited to possible account minimums, strict limits on grant allocations, management fees and the potential that future tax laws may change at any time that may impact the tax treatment and benefits of donor advised funds.
This information is not intended to be a substituted for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.