Sustainable funds could be troublesome to evaluation. What buyers must know

As the demand for sustainable funds increases, it can be difficult for some consumers to figure out what to add to their portfolio.

Securities and Exchange Commission chairman Gary Gensler shifted his focus to environmental, social and governance investing known as ESG in a recent statement. His team will examine climate- and workplace-related metrics and learn how funds market themselves.

According to Morningstar, investors invested $ 51.1 billion in net new money in ESG assets in 2020, breaking records for the fifth year in a row.

“I think marketing is really difficult,” said Phuong Luong, a certified financial planner, senior financial planner at Saltbox Financial in Newburyport, Massachusetts.

There are no clear definitions of value assets, even within the industry, which could confuse investors, she said.

More from a portfolio perspective

Here’s a look at other stories that impact portfolio planning and retirement planning:

Morningstar uses the term sustainable investing as a generic term for approaches that use ESG criteria throughout the investment process. However, experts say that there are important differences within the room.

Socially Responsible Investing (SRI) began with removing certain sectors or industries from portfolios, such as tobacco or arms, to align with an investor’s values ​​or religious beliefs. There is also a component of shareholder engagement, Luong said.

A more recent approach, ESG, is also value-based investing. However, funds can be more return-oriented, with broader criteria for portfolio investments. These funds may or may not participate in shareholder advocacy.

In response to less stringent ESG standards, impact investing focuses on the direct and specific impact of the assets themselves, said Rachel Robasciotti, founder and CEO of Adasina Social Capital in San Francisco.

“It’s not just about what you say,” said Robasciotti. “Metrics are about what you do.”

Measure impact

Those interested in value investing may have difficulty measuring the impact of their portfolio as there is no set industry standard. While a company’s commitment to tackling climate change is easier to gauge, other issues can be more difficult.

For me, the most important and most important thing is who set this metric.

Rachel Robasciotti

Founder and CEO of Adasina Social Capital

“For me the most important and most important thing is who set this metric,” said Robasciotti. Those working with an advisor can ask questions about the metrics and impact of their funds.

For example, there is a difference between having a fund manager deciding what is material and implementing guidelines for affected communities, she said.

Screening fund

One of the biggest challenges in reviewing value funds is that there may be limited public information, Luong said.

For example, names such as “social” or “green” may appear to indicate that the fund manager is aware of these issues. However, investors may not have access to the criteria or data used to make decisions, she said.

“Traditional ESG data is usually proprietary, behind a paywall,” she said. However, there may be other ways for investors to access the data.

As You Sow is a non-profit organization that measures corporate environmental and social responsibility through shareholder interests. The organization uses open source publicly available data from nonprofits and local activists, Luong said.

“I see it as a starting point for advisors and the public,” she added.

As You Sow’s Invest Your Values ​​tools allow consumers to see which companies are part of their fund and decide whether the holdings are in line with their values ​​like climate issues, gender equality, guns, tobacco and more.

Those motivated by racial justice can also explore Adasina’s free Impact dataset.

“What you’re looking for is consistency and action,” said Robasciotti.

Comments are closed.