Sustainable Investing

It is easy to dismiss a term such as "Sustainable Investing" as a fad or as something outside your regard, but with more understanding of what Sustainable Investing is, it is much easier to see its importance and how it could relate to you.  

Sustainable Investing is a blanket term used to describe multiple investment strategies that consider attributes of companies such as Environmental, Social, and Governance (ESG) factors as well as an investor’s personal values.  It can mean choosing to invest in companies one believes to be making a positive impact on the world, or choosing to exclude types of investments one finds morally objectionable.  It covers such a broad spectrum that you may be unconsciously engaging in Sustainable Investing already. 

There are many strategies for Sustainable Investing, below are some of the fundamental ones explained:

Exclusionary Screening

 Choosing to exclude types of investments based on moral values and social norms – historically referred to as Socially Responsible Investing.  Examples of this would be avoiding the alcohol industry or clothing manufacturers with past human rights violations. 

Best-in-class Selection

Selecting one company over its peers due to its ESG factors. Examples might be choosing an oil company based upon its clean environmental record or a household product producer who offers their employees paid time for volunteer work.

Impact Investing

Selecting investments based on a secondary goal of a company that makes a positive impact.  A company’s primary goal would typically be to build a strong and successful business, but a shoe company might choose a secondary goal of improving the lives of underprivileged children by to donating every 10th pair to a child in need.

Exclusionary Screening

     Aligning your investments with an environmental or social theme such as clean water, renewable energy, healthcare, or supporting women business owners.  

Active Ownership

   Being active in the management process of a company through proxies and shareholder proposals to encourage the adoption of business practices that are morally and socially responsible. 

ESG Integration

Choosing companies who are cognizant of their ESG factors and work to incorporate responsible practices into their business model.

But why, you may ask, would it be beneficial to you to narrow the field of potential investments? Wouldn’t a narrower selection of investments make it more difficult to outperform the market?  Evidence suggests that paying attention to ESG factors can be beneficial to your bottom line.  Researchers from the University of Oxford and Arabesque Partners aggregated the results of 200 studies to report on the impact of sustainability on corporate performance and found the following:1

  • 90% of the studies conducted on a company’s cost of capital showed that sound sustainability standards can actually lower a company’s cost of capital;
  • 88% of the research showed that ESG practices resulted in better operational performance; and
  • 80% of the studies showed that ESG practices positively influenced a company’s stock price.

These facts aren’t surprising.  It is logical that operating your business responsibly and ethically would help mitigate risks and costs associated with legal disputes and negative press.  Moreover, considering additional criteria when choosing investments is prudent and “will likely lead to more complete analyses and better-informed investment decisions.”2

At TWM, we want to help find the right investments for you – whether you are a fisherman who can’t abide water pollution or a business owner who knows that happy employees are a cornerstone to success.  No matter who you are, there is some cause you back.  We believe that your investments should be tailored to you: a reflection of who you are and what you care about. Give us a call. We’d love to learn more about you and build for the future. 

1 University of Oxford and Arabesque Partners, “From the Stockholder to the Stakeholder: How Sustainability Can Drive Financial Performance,” March 2015.

CFA Institute, “Environmental, Social, and Governance Issues in Investing: A Guide for Investment Professionals,” 2015

This research material has been prepared by LPL Financial LLC.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged index and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

Any economic forecasts set forth in the presentation may not develop as predicted and there can be guarantee that strategies promoted will be successful.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not ensure against market risk.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

SRI and ESG investing are subject to numerous risks; chief amongst these is that returns may be lower than when decisions are based solely on
investment considerations.