Investing With your Values - Sustainable and Socially Responsible Investing

Presented by Lucas Group Financial Advisors |

For many individuals, their first stock market investment comes in the form of mutual funds and similar investments within their 401(k), IRA, or other retirement plan. Investing in the market, in either stocks and bonds, allows your money to grow long-term in addition to the funds you add over time; putting your money to work for you, as you save for retirement and other goals. For most people, the primary objectives for their investments are: 1) will it help me meet my goals? and 2) will it do so without taking unnecessary risk?

However, we are increasingly seeing investors ask a third question: do the companies that I invest in reflect my values? This has given rise to socially responsible and sustainable investing portfolios, sometimes called ESG investing (Environmental, Social, and Governance). In his published 2021 Letter to CEOs, Larry Fink stated "from January through November 2020, investors in mutual funds and ETFs invested $288 billion globally in sustainable assets, a 96% increase over the whole of 20191." Larry Fink is the CEO of BlackRock, the world's largest asset manager as of January 2021. He goes on to explain that value-based investing, addressing issues such as climate change and racial inequality, not only allows someone to invest with their values but may also improve their long-term investment results. Fink outlines how all companies will be affected by climate change and new government regulations, and that companies on the forefront of the move to "net zero emissions" will benefit compared to those who adapt only when forced to. He states "over the course of 2020, we have seen how purposeful companies, with better environmental, social, and governance (ESG) profiles, have outperformed their peers [...] enjoying a 'sustainability premium.'"

Investing with your values

What does this mean for you? While value-based investing may have previously been more expensive or compromised investment performance, that's no longer the case. There is now a wide selection of investments to fit both your goals and values, screening companies based on a variety of characteristics. Depending on the portfolio, some will specifically search for and invest in companies with sustainability goals, while other portfolios will specifically exclude companies with certain business practices or in specific industries.

Some sustainability portfolios will specifically look for companies committed to environmentally-friendly business practices. These portfolios invest in companies that:

  • Reduce their consumption of resources: these companies are more efficient in their resource use, particularly with non-renewable energy sources
  • Reduce emissions of toxins and pollutants: these companies are committed to lowering chemical emissions, reducing pollution, and striving to lower their environmental impacts.
  • Implement proactive environmental practices and initiatives: these companies are forward-thinking and actively incorporating their environmental goals into business decisions, instead of making the environment an after-thought
  • Help customers achieve sustainability: these companies not only think of environmental impacts during production, but also for the end client (recyclable packaging, products that are recyclable or reusable)

Some of the most common ESG screens will rule out any companies that:

  • Earn significant revenue by producing weapons of mass destruction
  • Earn revenue through tobacco sales
  • Engage in business activities in certain countries with poor human rights records
  • Earn significant revenue from gambling activities
  • Engage in certain medical practices or research
  • Have had major controversies relating to child labor infractions (in the US or abroad)
  • Engage in energy production with the largest impacts on global warming (for instance, coal burning)

With the growing number of value-based portfolios available, it's becoming easier for investors to find one that matches their beliefs and values while still meeting their long-term financial goals.

Want to know more?

We have many options available, and can help build a portfolio for you that meets your goals, desired risk level, and values. Contact us using the form below to set up a consultation.