I braved last weekend’s brutal heat wave to meet a friend for Sunday brunch in Corona del Mar. My friend and I wandered into a home décor store and saw some beautiful decorative coral. As someone who loves diving and the sea (see my blog post Security vs. Freedom and the magnificent merits of flying business class), the display made me suddenly sad. We humans have been killing off the reefs for decades through coral mining, overfishing, and human pollution—including our sunscreen. Then I noticed a small sign that said this gorgeous coral was not mined, but farmed. Even better, the profits are used to help save and restore the reefs. A relief? Yes, but there’s much more to worry about.
Devastating heat waves across North America just killed more than 50 people in Quebec. At least 100 people died after record rainfall caused flooding and landslides in western Japan. It’s no wonder Jerry Brown and Michael Bloomberg are so committed to battling climate change through September’s Global Climate Action Summit.
If, like me, you’re feeling that recycling, reducing, reusing, and giving up straws is just the beginning, you may be a perfect candidate for ESG investing. ESG is an excellent way to put your money to work to make a global difference while also potentially improving your returns over the long term.
What is ESG investing?
ESG stands for environmental, social, and governance. Funds that are identified as ESG investments include stocks of companies that adhere to ESG guidelines. While each company’s ESG policy is different, an ESG label generally implies that a fund includes companies that are focused on helping improve environmental and social concerns. Selection criteria also exclude companies that contribute to or are responsible for human rights violations, environmental damage, or other violations of fundamental ethical norms, including the production of weapons that violate fundamental humanitarian principles through their normal use. What is particularly attractive about ESG funds is that they allow you, the investor, to align your investments with your values.
That said, investing in this way hasn’t always been easy, nor did it necessarily reward investors. ESG investing grew out of a movement called Socially Responsible Investing—or SRI—that focused primarily on excluding companies that were considered ‘morally undesirable.’ The problem: there was little or no focus on economic value. The result: many of these investments didn’t qualify as much more than feel-good investments that were used by a niche group of investors: Millennials, liberals, and anyone who put their hearts far above their wallets. For these reasons, our team at Klein Financial Advisors has steered clear of SRI and ESG—until now.
For those of us who are concerned about environmental, social, and corporate governance issues and our wallets, new research shows that the approach to ESG investing has evolved to make it a viable and more potentially profitable investment option.
Thisis precisely why we are now pleased to offer our clients a selection of ESG funds as part of our carefully selected menu of available investment options. While we have not elected ESG investments in every asset class, we have approved ESG options in domestic core, small-cap value, international large-cap, and emerging markets. Each of these funds selects stocks based not only on a company’s ESG policy but also on how that policy adds value to the company’s offering. I’m not the authority on ESG investing, but I rely on solid information, research, and analysis from experts. I believe choosing ESG investments based on value makes sense.
If you’re one of our clients, we’ll be sharing these options with you at our next meeting. (Feel free to reach out sooner if you want the details right away!) Otherwise, I urge you to talk to your Certified Financial Planner (CFP) to get clear, independent guidance on ESG investing. Carefully choosing advisors and investments ensures your dollars impact issues that matter to you and that your investments offer potential for growth over the long term. After all, driving global change and investing are both all about the future.
In the past 50 years, we’ve come a long way in reducing carbon emissions. In 1970, there were 22.5 tons of carbon emissions per person per year. Today, that number is down to 16. The Paris Climate Agreement has set a target of 2.1 tons of carbon emissions per person. Unless we make individual and collective efforts to support change, we risk undoing that past progress and creating further, irreversible damage to the planet.
Making changes isn’t easy. I know. I drive a gas guzzler (but I drive it as little as I can). I had the air conditioning blasting the entire weekend (but I don’t think I would have made it to Monday if I hadn’t!). And I’m taking a long flight to Tanzania on Wednesday (if I could get there any other way but by plane, I would!). However, I am taking little steps. I make sure my fruit is from California. I buy eggs from a local farm. I’ve broken myself of the habit of using straws. I have a long way to go, but I try a little every day. If you, too, want to make a difference, look at specific actions you can take. Vote for representatives committed to combating climate change. Watch the live broadcast of the Global Climate Action Summit. And consider including ESG investing as part of your investment strategy. If you have any questions or are looking for suggestions, we’re always here to help.