Why shouldn’t I invest in how I believe?

Why shouldn’t I invest in how I believe?

There are multiple ways I could take this post from my standpoint as an ex-MSCI employee / current CFP® / forever Millennial, however I’ll use this post as a foundation for future articles on this topic as it has begun to creep into more of the mainstream. It also has political gasoline poured all over it so we’ve got that going on as well.

I’m also going to be 100% transparent as that’s the only way people should be. Don’t change your stripes based on who you’re talking with, unless it’s your young child and you’re cursing the Hawkeyes “play to not lose” mentality. Then go nuts.

So where do I stand on ESG / SRI / Impact investing? Well, before I answer that, let me share a few things that have shaped my view.

Midwest, MSCI, CFP®, California – this order.

Oddly enough, so many people try to politicize this issue and yes, I can understand that government policies, either what not to allow or what to subsidize, certainly have an effect. However, what I’m talking about here is the individual decision of whether or not to invest in Environmental / Social / Governance portfolios or those companies that are either not doing bad or vice versa, doing good in these three areas. MSCI has a great overview of this topic for those who are interested.

This is certainly something that has been around, but with a growing millennial investor population, we’re starting to see more options in the marketplace. All in all, I think this is a wonderful thing. Let me play my millennial card here for a second. Be it renewable energy, combating disease, clean water, healthy living or other specific issues, the ways to express one’s views through investing is continuing to become more efficient (read: options abound, finally). It’s a result of the knowledge economy and the fact that there is more and more data out there that can prove or disprove how companies are performing along these lines (e.g. recycling programs for Apple, current and future emissions from Exxon Mobil).

For a majority of these investors, the driving force to invest aligned with their values is NOT the alpha of what a portfolio can generate vs. a benchmark. Full stop. The end. This means investing in ESG-themed portfolios will only continue to increase for the growing swath of investors who take this approach.

For some investors, ESG falls into a risk management bucket and is just another layer of ‘factors’ that are viewed alongside value, momentum, quality, and volatility. It is just another component to consider when investing.

As a CFP® who is a fiduciary within a Registered Investment Advisory firm, my 1st goal of any client relationship is to do what the client wants, how the client wants it. However, even more important than this, is to educate the client on the potential results of what that client wants, and then pursue the path that that client and I agree on. ESG investing can certainly be part of this discussion if it is of interest to the client.

I would imagine, even in the Midwest, we will begin to see more of a push from our millennial clients to provide 1) options to invest alongside ESG themes, or 2) feedback on our own views of this very fluid area of investing.

Finally, California.

California is on the leading edge of this topic, as most people would assume, but even for this Iowa kid, seeing how that state takes care of the environment sure makes you begin to care about it more. I knew my CA state income tax rate was 10% and I’m sure some of that revenue was going to environmental issues (among other things), but in the end, we’ve only got one of these (earth) and it was easy to see that it was a priority for most people in that state.

I’m not advocating for high tax rates, I’m simply stating that if the environment is a priority for you, then there are growing ways to use your dollars to invest alongside this theme. California takes a more aggressive public policy stance on ESG issues vs. other states.

In my opinion, we will only see a continued increase with the rate of millennials interested in investing a portion of their money alongside the ESG / SRI issues that they care about, regardless of their relative performance vs. a benchmark.*


*There are many research reports and articles that will come up should you simply google “ESG Portfolio Performance”, arguing both sides of this topic.