The Sustainable Consumer – wine edition

Being a sustainable consumer can mean different things. In today’s bonus episode, I am joined by to Estebe Salgado from WeAreTheWine.com, to discuss sustainable and organic wines. Listen to the end for a little give-away for the holidays.

What is Sustainable investing?

Today, let’s talk about what sustainable investing is. It can mean different things to different people, and comes by many names, and in this episode we will take a quick look at different ways to approach it.

So first, why so many different names? When it comes to sustainable investing, there’s ESG, socially responsible, sustainable, impact, responsible, values based and others, and believe it or not, they all have merit or historical background. And it kind of depends what you’re trying to accomplish with it.

For me, I decided to go with the term sustainable investing, partly because I like the sound of it, but most importantly because it fits my approach – to invest in a manner that is sustainable both from a financial perspective, as well as from the impact or exposure of the associated portfolio.

Historically, sustainable investing was limited sin stocks, like tobacco, alcohol, gambling, weapons, and the like. It was first set in motion by the Rockefeller family back in the 1970’s as a way to reflect the values of the family.

In recent years, it has evolved to be much more nuanced, especially as data is becoming more widely available. The foundation can be the exclusionary approach, where you have certain things you want to avoid, similar to what the Rockefellers did, avoiding the stuff you don’t want to be associated with. The goal is to find companies that act or behave in a manner that is aligned with your values, or at least do not work against them.

You can then add a layer that is inclusionary on top, and focus on investments that represent what you really want to promote in your portfolio, or certain characteristics you’re feeling strongly about. It can be thematic in nature, maybe focused on renewable energy, gender equality or climate change, or it can be more general in it’s approach. Again, it can be a very personal decision.

Investments can have both financial and a non-financial returns. Traditional investing focuses solely on the financial aspect, while Impact investing is more about the non-financial characteristics, such as providing low-income housing, or supporting a local economy, but having less focus on making money. Sustainable investing, in my opinion, aims to bridge the two, where there is a balance between the two returns. It can be structured to potentially yield a financial return similar to that of the broader market, while still having a profile you feel is right for you. Of course, any time you invest in a different way than the regular market, you should expect that your return can be different.

When you look at the available investment options, you are starting to see many investments that have the letters ESG in their name, and this has become a common sight in the investment world. The E, for Environment, is usually the one that is the easiest to grasp, as it is related to carbon emissions, energy efficiency, resource use, and similar. The S, for Social, covers things like gender and diversity policies, both in the workforce and the boardroom, human rights, labor standards and customer satisfaction. Finally, the G is for Governance, and looks at board independence, fair executive compensation, bribery and corruption policies and data security.

Truth be told, I don’t believe there is a so-called perfect company out there – most have room for improvement in one area or another – but some are working more diligently on addressing their issues than others.

Wall Street has done a great job adopting the ESG framework, although in a way that I find leaves room to do better. Their focus is on finding the companies that make the most money while scoring well in the various categories they have determined are appropriate for a given company. Not necessarily one that makes a positive impact in the category. It could, at least theoretically, be that a company makes a lot of money on technology to help those affected by climate change, while operating in a manner that makes the issue worse.

I think there are plenty of options to choose from, where you take the ESG framework as a great starting point, and then overlay a criteria to focus on those companies that are looking to alleviate or reduce the issues, while potentially making money in the process. With thousands of investment options out there, I do believe it is possible to build a diversified portfolio in this fashion.

One of the things that often come up when you talk sustainable investing is well, I need to and want to make money, can I do that and do it sustainably? Yes. This, as with anything investment related, there’s a risk involved, even potential loss of your principle. But I do think adding the screens and investing in solid companies you feel good about, you still have the potential to make money. You may or may not have the same outcome as you would if you were invested in the traditional, broader market. But I do think that over time, performance should not be a hindrance to add a sustainable angle to your portfolio.

The longest running index around sustainability has been around since 1994. An index is a hypothetical portfolio representing a segment of the financial market, and while you can’t invest directly in an index, it’s a good measure to use to track the performance of a group of assets against in a standardized way. Since 1994, that socially responsible index has performed pretty much in line with the broader market. Some years better, some years worse. As you would expect when you own something different than the broader market, performance will deviate, for better or for worse.

But over time, there is a convergence of the returns, which from my point of view, is really quite comforting. You do not necessarily need to give up a financial return in order to feel good about the companies you’re investing in.

Now, another myth is that it’s expensive to invest in sustainable options. That used to be the case, so it’s a myth with a historical relevance. It’s not so much the case anymore. The financial industry has evolved tremendously over the past 5-10 years, where cost is much less of a component in portfolio construction process than it used to be. And now you can find many options that have a sustainable component that are comparable to the broader options from a cost perspective. So that should not be a major hindrance any more. Of course, you do have to pay attention to it because there are some that are very expensive, just as there are if you are looking at more generic options. In general, when constructing a portfolio, costs should be a consideration. It’s not necessarily the primary but it should definitely be considered as you’re as you’re looking at your portfolio.

When you are going through this exercise of investing in a manner that is aligned with your values, keep in mind that perfect may not be attainable. But getting started is better than not doing anything. And even looking for a partial improvement can make a difference, especially if you keep making these little changes over time. So don’t let the goal of perfect keep you from getting started.

In the show notes, I have a link to a short quiz to find your impact persona, to give you an idea as to what values are more important for you to focus from a sustainability point of view, and different screening options. I think that is a great place to start. If you would like some additional insights, feel free to reach out for a conversation, it is a topic I love, and I can walk you through what options you may have available. You can also go to my website, www.forty4financial.com, for more information.

Impact Questionnaire (https://www.ethosesg.com/forty4-financial/take-an-impact-assessment)

Introducing The Sustainable Investor Podcast

Welcome to this first introductory episode of “the sustainable investor” podcast.

I have always been interested in the power of finance – paying close attention to my bank book from an early age, and trying to make sense of the numbers on my parents’ mortgage statement.

Granted, I was somewhat naïve when it came to money and wealth, growing up in a lower middle class family – we always had enough, but not much more than that – and definitely no excess to put into investments.

Looking back, I invested in what I could, namely myself – pursuing education, and my love of swimming. This allowed me to experience the life of a Division I athlete, thriving in the dual demands of athletic and academic performance.

This is also where I found the field of finance, somewhat through a coincidence of class schedules. In the end, I received a masters degree in Financial Economics from American University, a degree that, while still being under the umbrella of the Economics department, was heavy on finance courses. Finally I had found the intersection of math and money that I didn’t even know I was looking for.

I have always loved to learn, even for the sake of learning. That way I could add both the Chartered Financial Analyst and the Certified Financial Planner designations over the following years, which really helped shape me in my career. Between the two, they have given me a solid background both in portfolio construction, and how to build a sensible financial plan for my clients.

My goal as a financial advisor is to help clients make sense of the financial world, and it is truly an amazing job, with new situations to navigate in a way that depends on each individual client and their circumstances as well as their personality.

Growing up in my native Denmark, the mindset of renewable energy and using resources responsibly has always been close to my heart. I am now in a position, where I can help others incorporate their values in more aspects of their lives – and potentially feel better about their investments, and the impact they have on the world around them.

That is why I have chosen to incorporate sustainable investing in my work. It comes by many names, and may mean different things to different people, and we will explore this further in later episodes. For me, it means to have a positive impact on the people we interact with, on the planet we live on, and trying to make money at the same time. Only when all these factors are adequately evaluated, do I think the outcome is truly effective for the individual client.

I plan on releasing two episodes per month, and keeping each episode relatively short. Sometimes I will have a guest with me, to do a deeper dive into a particular topic.

The Sustainable Investor will be available on all the major platforms where you get your podcasts, as well as through my website, www.forty4financial.com.

I look forward to starting this journey with you.