Our ESG Investing Approach

As facilitators who help clients live the life they want to live, we customize our investment management to each client with special emphasis on their values. For many clients, this means including Environmental, Social, and Governance (ESG) investing as part of their investment plan.

For those who are not interested in ESG investing, we build a standard portfolio and offer other ways in which they might express their values.

ESG criteria include environmental issues such as carbon emissions and pollution, social issues such community involvement and equitable employment practices, and governance issues such as lobbying practices and executive compensation. Some clients are more passionate about the E or S or G, but all three are becoming increasingly important for companies as they look to minimize risk and maximize shareholder returns.

Our ESG philosophy

There are three main ways to think about ESG investing:

Purist

The purist invests only in companies with strong performance on ESG issues. This is a very narrow group of companies, and even so, no company is perfect.

Skeptic

The skeptic looks at the fact that 90% of companies are rated as acceptable by the key rating services and deem the concept to have no value.

Optimist

The optimist sees ESG investing as a way to move companies along a continuum toward more ESG-responsible practices over time.

We generally fall into the optimist category. We believe that in the future, ESG criteria will likely be baked into investment decisions just as financial criteria are. The European Union has largely moved in the direction of ESG becoming a standard part of corporate values.

ESG investing is a movement toward both accountability and an enormous energy transition. Companies cannot fully change at the flip of a switch. They need time to adjust and to hit incremental targets along the way. As more investors prioritize ESG values in their portfolios, those investors influence companies to focus on ESG values.

How we handle ESG investing

We construct ESG+ portfolios with three principles in mind:

Similar costs to a standard portfolio
Similar returns to a standard portfolio over 10 years
A strong ESG bent across the whole portfolio

We believe you can’t achieve the first two objectives with an ESG-only portfolio. Our ESG+ portfolios emphasize ESG investments but aren’t exclusively ESG. They include some purist funds, some funds that exclude very few sectors or companies, and funds in between. These portfolios are intended to give clients a competitive return and while moving our world toward sustainability.

If a client wants a more purist ESG approach, we will create a custom portfolio — which will generally have substantial trade-offs in costs and returns.

ESG results

We think ESG investing can provide comparable performance to standard portfolios. In 2022, our ESG portfolios had lower results than our standard portfolios because the ESG portfolios deemphasized fossil fuels, which were a hot growth category in 2022. For some years before that, ESG portfolios outperformed standard portfolios because they invested in industries with a low carbon footprint, like technology, which were hot growth categories during that time.

In addition to financial results, we pay attention to the world impact results of our ESG investment choices. Our recent webinar, “Exploring the impact of ESG investments,” and a blog post about our ESG measurement tools explain how we analyze impact.