The Informed Investor

This is the second article in a series on ESG Investing (Environmental, Social, Governance Investing). Click here to read the first.

Most long-time investors have sometimes felt that they had to choose between their values and making money. Usually, holding a large, diversified portfolio meant you likely ended up with an oil or tobacco company investment that paid well but did not do much good for the planet.

Is that even possible? For a while, no one could be sure. But recent research is bringing us good news: you can earn competitive returns and feel like you are making a positive difference in the world.

First, Some Definitions

First of all, what are we even talking about? Socially responsible investing has a formal name: ESG Investing which is broken down as follows:

E is for Environmental

Each investment is screened for environmental criteria, such as the company’s record on polluting, water use, and resource conservation efforts.

S is for Social

Next is social criteria. Here, factors evaluated may include worker health and safety, diversity, contributions to the community, and issues surrounding privacy and security.

G is for Governance

Finally, G is for Governance, meaning factors that may include ethics, transparency, and shareholder rights.

Of course, these factors are not evaluated in a vacuum. Instead, they are reviewed alongside traditional metrics such as revenues, profit margins, competition, etc.

But What Kind of Result Can You Expect?

It was long assumed that investing for social reasons would make you feel good, but probably compromise your results. Fortunately, research now suggests you do not have to choose between good returns and your ethics.

Based on research, ESG Investing is not only shown to match conventional investments in performance; ESG Investing is showing it can even beat them.

A study by Morningstar reviewed the performance of sustainable funds in Europe over a 10-year period ending in 2019. The study analyzed data over one, three, five, and ten years, as well as during the start of the COVID-19 crisis (first quarter of 2020).

Researchers found that 58% of the sustainable funds outperformed their traditional counterparts over the longest period, 10 years.

The outperformance was even higher over shorter timeframes:

• 4% of socially responsible funds outperformed their peers over 5 years
• 5% beat traditional funds over 3 years
• 6% won over one year[i]

Of course, this is a relatively new investment theme, and there is no guarantee the outperformance will continue. However, it is encouraging to know that investment results seem, based on this data, very comparable to their competitors.

The Eye of The Beholder

It is easy to wonder what actually counts as a socially responsible investment. The “ESG” aspect is usually applied as an additional screen used after finding those investments that also meet traditional financial requirements.

But when it comes to applying the ESG screens, a lot of the criteria will depend upon the fund manager, ESG rating agency, or whoever is doing the reviewing. However, some major themes are found in today’s ESG investment funds:

• As you may have guessed, technology is often a significant holding. This is no surprise, as technology is dramatically cleaner than a manufacturing or mining business, for example.
• According to research by RBC and Credit Suisse, Microsoft was the most commonly held stock, making a showing in over 55% of ESG funds.
• Alphabet, VISA, Apple, and Xylem rounded out the remainder of the top five holdings.
• Drug stocks also showed up, with Amgen and Merck becoming more popular.[ii]

More Options Coming Soon

According to Morningstar, money continues to pour into sustainable funds at a record pace: an estimated $10.4 billion in the second quarter of 2020.[iii] With this volume of money flow, we will likely see many new options in the future.

Right now, we are already seeing specialty funds emerge. For example:

Want to support clean energy? There are many options for you, from Green Tech investment funds to those specializing in solar.

Want to support gender diversity? There is a gender diversity ETF, with an appropriate ticker symbol: SHE.

The list goes on, and given the popularity of ESG investing, there will likely be more to come.

Why Now is the Time to Consider ESG Investing

Today, it is getting easier and more economical to include these social factors in your investment preferences. In the past, there were few resources widely available for reference; doing your homework involved time-consuming research and guesswork.

If you work with a financial advisor, he or she probably has even more resources at their disposal to evaluate these factors. And these sources are growing by the day, as more and more money flows into this segment.

Today, you can have your cake and eat it, too: it is possible to earn competitive returns while investing with your heart and conscience.

ICC is a fee-only fiduciary financial advisor that has been offering independent, transparent wealth management services for decades. We are here to help our clients with their ESG questions and investing. If you have $1,000,000 or more in investable assets, contact us today to learn more about our services.

[i] Hale, Jon. “Sustainable Funds Continue to Rake in Assets During the Second Quarter.” Morningstar, Inc., 30 July 2020, www.morningstar.com/articles/994219/sustainable-funds-continue-to-rake-in-assets-during-the-second-quarter.

[ii] Stevens, Pippa. “Sustainable Investing Is Set to Surge in the Wake of the Coronavirus Pandemic.” CNBC, CNBC, 7 June 2020, www.cnbc.com/2020/06/07/sustainable-investing-is-set-to-surge-in-the-wake-of-the-coronavirus-pandemic.html.

[iii] Stevens, Pippa. “Sustainable Investing Is Set to Surge in the Wake of the Coronavirus Pandemic.” CNBC, CNBC, 7 June 2020, www.cnbc.com/2020/06/07/sustainable-investing-is-set-to-surge-in-the-wake-of-the-coronavirus-pandemic.html.

IMPORTANT DISCLOSURE INFORMATION

The Investment Counsel Company of Nevada (“Company”) is an SEC registered investment adviser located in Las Vegas, Nevada. Company may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements. Company’s web site is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of Company’s web site on the Internet should not be construed by any consumer and/or prospective client as Company’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet. Any subsequent, direct communication by Company with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. A copy of Company’s current written disclosure Brochure discussing Company’s business operations, services, and fees is available from Company upon written request. Company does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Company web site or incorporated herein, and takes no responsibility therefore. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s).

Certain portions of Company’s web site (i.e. newsletters, articles, commentaries, etc.) may contain a discussion of, and/or provide access to, Company (and those of other investment and non-investment professionals) positions and/or recommendations as of a specific prior date. Due to various factors, including changing market conditions, such discussion may no longer be reflective of current position(s) and/or recommendation(s). Moreover, no client or prospective client should assume that any such discussion serves as the receipt of, or a substitute for, personalized advice from Company, or from any other investment professional. Company is neither an attorney nor an accountant, and no portion of the web site content should be interpreted as legal, accounting or tax advice.

Please Note: Limitations: Neither rankings and/or recognition by unaffiliated rating services, publications, media, or other organizations, nor the achievement of any designation or certification, should be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Company is engaged, or continues to be engaged, to provide investment advisory services. Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser. Rankings are generally limited to participating advisers (see below as to participation data/criteria, to the extent applicable). Unless expressly indicated to the contrary, Company did not pay a fee to be included on any such ranking. No ranking or recognition should be construed as a current or past endorsement of Company by any of its clients.

ANY QUESTIONS: ICC’s Chief Compliance Officer remains available to address any questions regarding rankings and/or recognitions, including the criteria used for any reflected ranking. Please review Important Disclosure Information set forth in the last section of this website.

The Barron’s Top 1200 Financial Advisors by State ranking is based on data provided by over 4,000 of the nation’s most productive advisors. Factors included in the rankings are: assets under management, revenue produced for the firm, regulatory record, quality of practice, and philanthropic work. There is no cost or fee to participate in this survey. The questionnaire is completed and submitted online.

The Barron’s Top 100 Independent Advisors ranking reflects the volume of assets overseen by the advisors and their teams, revenues generated for the firms, and the quality of the advisors’ practices. The scoring system assigns a top score of 100 and rates the rest by comparing them with the top-ranked advisor. There is no cost or fee involved to participate in this survey. The questionnaire is completed and submitted online.

The Forbes “America’s Top Wealth Advisors” ranking was developed by SHOOK Research and is based on in-person interviews and telephone due diligence meetings and a ranking algorithm that includes client retention, industry experience, review of compliance records, firm nominations and quantitative criteria, including assets under management and revenue generated for their firms. Investment performance is not a criterion because client objectives and risk tolerances vary and advisors rarely have audited performance reports.  Rankings are based on the opinions of SHOOK Research, LLC and not indicative of future performance or representative of any one client’s experience. Rankings and recognition from Forbes are no guarantee of future investment success and do not ensure that a current or prospective client will experience a higher level of performance results, and such rankings should not be construed as an endorsement of the advisor.  Neither Forbes nor SHOOK Research receives compensation in exchange for placement on the ranking.

The Forbes ranking of “Best-In-State Wealth Advisors,” developed by SHOOK Research, is based on an algorithm of qualitative criteria, mostly gained through telephone and in-person due diligence interviews, and quantitative data. Those advisors that are considered have a minimum of seven years experience, and the algorithm weights factors like revenue trends, assets under management, compliance records, industry experience and those that encompass best practices in their practices and approach to working with clients. Portfolio performance is not a criteria due to varying client objectives and lack of audited data. Neither Forbes or SHOOK receive a fee in exchange for rankings.