27 September 2023

Aligning investments with personal values

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Kacie Swartz* offers advice to people wanting to put their money where their values are.

What is the purpose of your investment portfolio?

For most of us, the whole point of an investment portfolio is to make life better for our families.

But your investments are also an extension of your personal values.

And if your investment portfolio is not aligned with those values, is it meeting your needs?

Sometimes called “sustainable,” “socially responsible,” or “impact” investing, ESG investing is a way of evaluating companies for their Environmental, Social, and/or Governance practices.

Mutual funds and exchange-traded funds (ETFs) that use ESG criteria invest in companies that have higher scores in one or more of these metrics.

History of sustainable investing.

One definition of sustainable investing is “shunning profit from the expense of our neighbours.”

I like this definition as it focuses on why we are trying to align our investments with our personal values.

This type of investment standard can be found throughout history.

In the United States, interest in Socially Responsible Investing (SRI) increased during the 1960s.

Protestors of the Vietnam War demanded university endowments divest their defence contractor holdings.

In the 1980s, South African apartheid was opposed by US churches, state pensions, and universities.

Because of pressure from these groups, US companies were encouraged to boycott trade with South African businesses until apartheid was ended.

This contributed to economic instability in South Africa and eventually apartheid was officially ended in 1994.

Although institutional investors like these endowments and pensions have a head start, over the last two decades interest and familiarity with ESG funds has grown for all investors.

What’s the difference between E, S and G?

Environmental factors are the easiest to understand.

A company will be evaluated on pollution, strategy for climate change, energy efficiency, etc.

Social and governance factors overlap a little more.

Social includes issues like a company’s commitment to diversity, community support, and labour practices.

Governance is more about the company itself.

Examples include the diversity of the board of directors, where political donations of key employees are going, and the company procedure for addressing sustainability and climate issues.

As an investor, wading through all these acronyms and overlapping information can be tough because ESG funds are measured through multiple lenses at the same time.

A company that has a strong E score may not have a good S score.

A good S score may have a bad G, etc.

An example is Amazon.

According to the well-respected rating company MSCI, Amazon has an above average Environmental score, below average Social score for bad corporate behaviour and labour management, and an average Governance score for corporate structure and good data security.

Confusing, huh?

On top of all that, ESG funds analyse the more traditional financial metrics to decide if they want to invest in companies with mixed scores.

The important thing to remember is that funds using ESG criteria are not looking for a perfect company.

They just want better than average management of these issues.

How’s the performance?

You might be thinking, “Okay, enough with the explanations. How are the market returns?”

ESG funds outperformed conventional funds in the year 2021, over the past five years, in the time period of the 2008 recession, and overall since 2007.

Since 2007, companies with higher ESG scores outperformed their standard counterparts by over 17 per cent.

And that makes sense!

It’s expensive for a company to clean up an oil spill or fight legal battles against class action lawsuits.

During the recent labour shortages, employees have been loyal to companies that have fair labour practices and good benefits.

All these elements impact profit and profit drives investment dollars.

So how does an investor choose a fund?

Decide on which themes are the most important to you.

Are you concerned about climate change? Affordable housing?

One benefit of the recent tide of new ESG funds is that you can find investment options for most concerns.

But how do you evaluate those options?

Through your own research, or with your financial advisor, you can find funds that meet your personal criteria.

If you are passionate about a cause, you’ll also want to confirm the fund engages with the companies it holds through “shareholder advocacy.”

Shareholder advocacy is the ability of the fund managers to influence corporate decisions.

Fund managers use shareholder votes to encourage companies to commit to changes, like deadlines for net-carbon zero or better working conditions.

These examples can be found in the marketing materials for most funds that engage in shareholder advocacy.

But is it all marketing?

“Greenwashing” is the term for funds being misleading about their commitment to ESG criteria.

Some funds have even been renamed and remarketed to meet the demand for ESG.

This is bad not only for the investors who are misled but also for the causes these funds are supposed to be addressing.

If companies don’t see a financial impact tied to meeting ESG criteria, they have no incentive to change their practices.

The good news is that ESG disclosure by companies is becoming more commonplace and is required by some very large asset managers.

This kind of transparency makes it easier for the rating agencies to evaluate companies and provide ESG scores investors can rely on.

However, sometimes investors may not realize that a sustainable fund is going to hold a lot of familiar names.

It’s important to research why a fund holds a certain company before deciding you have been deceived by greenwashing.


Using ESG criteria to screen companies is just another way of evaluating investments.

It may seem new and different, but it’s still just investing.

Good business practices will result in higher ESG scores and higher profitability, so adding an ESG screen to your investment research makes good sense.

Transitioning to a socially responsible portfolio is one of the easiest ways we can make a positive impact on the future and the way our children will interact with global companies.

*Kacie Swartz is a personal financial planner living in Austin, TX with her husband and small children.

This article first appeared at ellevatenetwork.com.

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