Down to business sustainably: Tools to help you invest while being kind to planet

Sustainable investing is trending. Are you a recycler? Do you try to combat climate change? I’m a hiker and a member of Sierra Club.

We financial advisers see more options in our journals, in the fund and Exchange Traded Fund (ETF) research and in the many new investment choices. But in reality, few clients ask that their savings be invested in such a manner, perhaps because few clients realize it’s possible.

In reality, few financial advisers have sizable funds in sustainable investing. Although I use sustainable investments personally, only a third of my clients do.

Perhaps the slow integration of sustainable investing is due to confusing names for this trend.

In the past, “socially responsible” investing focused on excluding certain industries based on ethical or moral values — don’t invest in tobacco company stocks, for example. “ESG” investing rates companies on Environmental, Social and Governance practices — investing only in chemical companies with responsible anti-dumping policies, for example. “Impact” investing often applies to direct investments in private enterprises, like re-developing wasted inner cities.

“Sustainable investing” can be used to encompass all of these.

Perhaps the slow integration is due to a lack of consistency. Who sets the standards? One source is the Sustainability Accounting Standards Board at https://www.sasb.org/.

Who rates the companies? There’s well-known Sustainalytics.com, among others. Those providing research data feed into investment research services such as Morningstar.com, which I use, and Bloomberg.

Mind-boggling? Yes, but perhaps it’s enough to just ask “sustainable or not?” Many tools exist to get started.

Morningstar research has several datum addressing sustainability. Schwab Institutional, with which I’m most familiar, publishes a Socially Responsible Funds/ETFs list each year. Fidelity is introducing their ESG Pro data via subscription. Blackrock provides tools that incorporate their passive bond and stock ESG ETFs.

How do financial advisers construct a portfolio for sustainable investing? My firm’s approach has been to set a goal to invest a certain percentage, 30% or 50%, of a client’s portfolio in sustainable funds. That lets us swap out core holdings — mutual funds or ETFs — for others with high sustainability ratings.

It’s easy to construct a portfolio where 30% of the investment dollars are in companies doing business on a sustainable, responsible basis. Usually there’s no degradation of performance over the long-term, based on historical data. But it can cost more performance to switch, say, 75% into sustainable investments.

There are other viable approaches.

The Financial Planning Association’s Massachusetts chapter interviewed financial advisers in their ESG podcast. One firm chose individual stocks with high ratings. One firm invested in stocks of area companies that they checked out themselves. Another firm constructed portfolios using all funds and ETFs with high sustainability ratings; that firm’s clients used either the regular core portfolio, or the high sustainability portfolio — all or nothing. One firm used exclusively sustainable investments, for all portfolios for all clients.

You, or your financial adviser, are now in a position to invest your funds with your values.

Sandi Weaver, CFA is a Certified Financial Planner professional and a member of the Financial Planning Association of Greater Kansas City. She provides financial planning through Weaver Financial in Mission, and is a member of the Missouri Society of CPAs’ Wealth Management Committee. She holds the Chartered Financial Analyst designation, the benchmark of professionals in the investment field.

This story was originally published June 30, 2021 at 5:00 AM.