Introducing: Sustainable Investing Services

January 25, 2019 10:05 am

Derek M. Amey

Partner & Portfolio Manager

I started my career with StrategicPoint way back in 2001, and a lot has changed since then- both with the firm and personally. Back then I was working in client service and placing trades on behalf of the advisors. Personally, I was single and living with some college friends. This summer, my wife and I are expecting our second son to arrive. Raising a family makes you reevaluate a lot of your life, including my investment approach as I continue to save for retirement.

When I first started at StrategicPoint we were managing some clients’ retirement assets with an approach called “Socially Responsible Investing” or SRI for short. This meant as StrategicPoint put together a diversified portfolio of stocks and bonds for these specific clients, we would try to exclude from the portfolio any investments in companies who profited from selling or manufacturing things like alcohol, guns, cigarettes, and other weapons of war. Excluding certain industries and/or companies wasn’t very complex, so back then this was typically done for clients by choosing to invest in mutual funds that had committed to this approach. One of the issues at the time was that there wasn’t a lot of funds to choose from and the funds that were committed to this investment approach typically had very high expense ratios compared to traditional funds.

StrategicPoint revisits the SRI/ESG investing landscape
Fast Forward to 2019 and we find that there’s been a massive amount of change in the investing landscape with respect to Socially Responsible Investing. There has been an explosion of new fund offerings from a wide variety of different fund companies with a socially conscious approach. We’ve seen new funds covering everything from major asset classes to even the niche sectors like solar power and clean water. As investors now have a greater list to choose from, we’ve watched the expense ratios of many of these funds drop. In addition, a number of  the new funds are Exchange-Traded Funds, which typically are cheaper than an average mutual fund.

What’s in a name?
As new funds were created, mutual fund companies began looking for a way to improve on the SRI approach. Recall that SRI investing was primarily an investment approach centered around exclusion. While SRI funds still exist, there’s now a new approach that builds on the exclusion model. This new approach is called an “Environmental, Social and Governance” approach, or ESG for short. Please be aware that there’s still some confusion in the industry on the differences between SRI and ESG, however there is a big difference. ESG still will exclude many of the same companies that SRI does, but then ESG investing looks to buy shares in companies that exhibit favorable traits with respect to the Environment, Social aspect, and Governance issues. For example, ESG screens for companies performing well in some of the following areas:

Environmental: Energy Efficiency, Waste Management, Air/Water Pollution, Carbon Emissions

Social: Gender & Diversity Policies, Community Relations, Labor Standards

Governance: Board Composition, Executive Compensation, Audit Structure, Political Contributions

An ETF with a commitment to ESG investing will  typically score and rank companies’ performances in those categories, and then  will usually choose to invest in those that scored well and choose not to invest in companies that scored poorly. One key theory behind ESG is that if investors start to shun the bad actors and reward companies who take ESG issues seriously, investors can drive real change with how companies operate. Time will tell if this approach alters corporations’ behavior for the better, although there have been some anecdotal stories of change already. If ESG investing continues to grow and investors continue to vote with their dollars, it’s hard to see why it wouldn’t result in real corporate changes in behavior.

ESG investing has been gaining attention and adding investor dollars quite rapidly. According to a recent study, in the last two years, assets using ESG strategies here in the United States grew by 38%. New funds and ETF’s also continue to be created, and that trend shows no signs of slowing down. In fact, just last year Vanguard created two new ETF’s with an ESG approach.

StrategicPoint wants to support our clients who wish to invest in a more socially responsible manner, which is why we are announcing the launch of StrategicPoint’s Sustainable Investing Services. We feel that if an investor is interested in this approach, it’s now more viable compared to years past due to the changes in the industry.

 

 

Derek Amey serves as Partner and Portfolio Manager at StrategicPoint Investment Advisors in Providence and East Greenwich. You can e-mail him at damey@strategicpoint.com.

The information contained in this post is not intended as investment, tax or legal advice. StrategicPoint Investment Advisors assumes no responsibility for any action or inaction resulting from the contents herein. Derek’s opinions and comments expressed on this site are his own and may not accurately reflect those of the firm. Third party content does not reflect the view of the firm and is not reviewed for completeness or accuracy. It is provided for ease of reference.