Aligning Your Values with Your Investments

by Bailey O. Davis

There are so many ways to help people, organizations, and causes that are special to you. You may donate your time by volunteering in your community. You may financially assist an organization that is important to you. You may do something small like switching to reusable grocery bags, or large like installing solar panels on your home.

Many people have begun to think about how they can impact their communities through their investments. The consideration of ESG (Environmental, Social, and Governance) screens* has grown rapidly over the last decade when making investment decisions. ESG investing has now become a viable investment option for individuals who are interested.

What is ESG Investing?

ESG investing, also referred to as sustainable investing, is the practice of considering the environmental, social, and corporate governance practices of companies to determine which companies support your values. Investment research and financial advisory firms have created a wide variety of screens to filter stocks for ESG attributes. *Screens are filters that refine companies based on a set of positive or negative criteria. Positive screens seek out companies that participate in ESG best practices, such as devotion to environmental sustainability. Negative screens exclude certain companies or industries based on their undesirable practices, such as oil extraction or poor records of labor rights. Screens filter companies based on any of the following three sectors of criteria:

• Environmental – includes a company’s environmental sustainability, conservation, exposure and management of environmental risks: How does the company reduce their carbon footprint? Does this company use clean energy sources? What practices, if any, does this company have to reduce waste or energy consumption?

• Social – includes a company’s internal and external relationships with the community, level of social advocacy, and civil rights activism: Does the company partner with companies holding their same morals? Does the company have a strong devotion to charity work in their community? What other stakeholders are involved, and how are they treated?

• Governance – includes a company’s accounting quality, stockholders’ rights, and corporate governance: Does the company avoid conflicts of interest between stakeholders? How do they treat their employees? Does the company have transparent and reliable accounting practices?

Is ESG Investing Right for Me?

The most important aspect to consider when deciding whether or not ESG investing is the best approach for you is to determine your overall goal for choosing ESG. When deciding if this investing is the best choice for you, consider the following:

• Market returns and Risk exposure: Consider whether or not your motivation for ESG investing involves maintaining positive returns or driving change. Socially conscious investments tend to have different company and sector allocation which can result in returns that are different from commonly held benchmarks. Determine if you are willing to compromise returns for socially responsible investment options.

• Screen options: Give thought to what style of screens meet your principles since not all ESG investments accomplish the same goals. Are there certain sectors of companies that you simply want to avoid, such as coal or tobacco? Do you wish to only invest in companies that specifically work to find solutions to issues that matter most to you, such as climate change or social injustice?

For many investors, incorporating ESG screens into their investments can be very rewarding. In order to maximize the benefits of ESG investing, it is important to first think through your goals and decide what is most important to you. After you have completed your goal setting, be prepared to spend some time reading and researching the various ESG options to understand how the various offerings manage their cost structures and ESG screen management.

Bailey O. Davis is a 2020 cum laude graduate of the University of South Carolina with a B.S. in Business Administration and a double major in Finance and Risk Management and Insurance. Bailey began working for Abacus as an intern in June 2015 and officially joined the team in May 2020.

Abacus is a financial advisory and investment counsel firm known for its passion in creating abundance for clients and family businesses through skillful listening and smart financial decision making. Managing over a $1.5 billion on behalf of its 240 plus families, Abacus consists of a team of multi-disciplinary experts who work collaboratively to serve its clients.