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Investing With a Purpose - ESG and SRI


For over a year I have been trying to determine if and how I should start offering ESG and SRI investing choices for clients.  Well, I have decided to go ahead and offer these options as part of what I do here at Forward Thinking Wealth Management.  Oh, in case you are not familiar with ESG and SRI, let me explain.

ESG investing refers to Environment, Social and Governance investing.  SRI stands for Socially Responsible Investing.  Often these terms are used interchangeably, however, they are not the same.  I will dig into this deeper in future articles let’s get a basic understanding of them.

Think of ESG as being the top level when it comes to investing with a purpose.  Analysts who are reviewing companies through an ESG lense are looking to see how they score on environmental, social and governance categories.  Basically, they are trying to determine if they are “good corporate stewards.”  A few of the items considered are carbon footprint, fines for illegal activities, community involvement, and lots more. Companies then receive an ESG score where indexes include those with higher scores.  Data reveals these companies typically do better than their peer group as they are more stable.

You may be wondering at what level certain industries are completely removed from an index.  This is where SRI comes into play.  SRI indexes start to remove, or include, industries based on what business they are in.  For example, there are SRI funds designed around everything from Catholic values to Sharia Law to excluding fossil fuels to alcohol.  On the flip side, there was an ETF years ago referred to as the SINdex, as it included just those companies dealing in alcohol, tobacco, pornography, and more.  So, while ESG looks at whether a company is a “good steward,” SRI looks to remove entire industries based on the social objectives of the fund.

There are two main reasons it took me so long to determine whether to offer this option.  First, I wanted to talk to some of my local fee-only peers who do SRI.  Well, there are only two (2) fee-only advisors within 200 miles of Akron offering it.  Yes, with roughly 23 million people within 200 miles of Akron only two fee-only advisors do this!

Next, I wanted to be able to provide some low-cost investment choices in the ESG and SRI space.  You know how I am constantly preaching about controlling for fees.  Well, after doing a ton of research, I built out portfolios nearly as low-cost of some of my “traditional” portfolios.

I’m not taking the approach these are the only investment options for clients, however, I see a trend toward this type of investing.  People are saying they want to use their investments to support and create change, just like they do with their charitable giving.   This is also happening at the institutional level where companies such as BlackRock are becoming more active with the $6 trillion in assets they manage.  While most advisors will wait until the demand is high enough to start offering ESG investments I am taking the same approach as my flat-fee model.  I am leading the way.  To use a sports analogy – I am skating to where the puck will be.

In future articles I will touch on areas including long-term performance, the evaluation of ESG companies, SRI options and more.  As always, everything I share will be with an approach toward education.  In the meantime, never hesitate to send questions or comments my way on this forward thinking topic.  Yes, I had to drop my firm name in there.