A Primer on Values-based Investing: SRI / ESG / Impact

At Ebersole Financial LLC we know that investment performance is important. We also know that your values are equally important. And we don't believe that investing based upon your values necessarily means lower expected performance. We work together with you to review your current portfolio and develop concrete action steps you can take to make your portfolio more SRI (Socially Responsible Investing) or ESG (Environmental/Social/Governance) friendly, based upon your individual goals. The great news is that there are many cutting edge resources out there to help us identify your key issues and concerns and apply those to your investment portfolio. In the process, we can also likely find ways to reduce the overall cost of your portfolio, which will be friendly to your wallet, too. 

We know that the values-based investing landscape is littered with buzzwords, acronyms and jargon that, quite frankly, can be very confusing. In order to help you better understand how we think about values based investing, which we take to include SRI, ESG and Impact investing, we have provided a short primer below. 

What is values based investing? This is investing that is based upon defined values that you hold. This has generally come to mean a concern about the environment or defined social causes, gender and economic equity and the local economy.  But, it can be defined much more broadly or narrowly than that. 

What is SRI? - Socially responsible investing (SRI) began as a faith-based initiative at the behest of large Church pension funds and tended to initially have a negative based approach, such as screening out guns, alcohol, tobacco or firearms exposures.  Today SRI has become relatively mainstream and has broadened its approach to include a focus on social causes such as diversity, gender equity and privacy rights. An industry has developed around providing SRI-type investment vehicles, including mutual funds and ETFs. 

What is ESG? Environmental, Social and Governance (ESG) is generally thought of as a positive approach to screening investments. The United Nation Principles of Responsible Investing (UNPRI) tend to be the guiding framework for the ESG movement as adopted by large, multi-national corporations and global pension funds.  ESG tries to identify and support the good corporate citizens with positive relationships to major stakeholders groups (employees, local community, shareholders, etc.), strong corporate governance (board diversity, audit controls, etc), and a record for promoting good environmental stewardship (low or no carbon emissions, low pollution, reducing antibiotics in the food supply chain, etc.) This is a growing segment of the financial services industry and as such, there are a significant number of investment products focused on this space. Because of the scale of this market, major index providers have developed SRI and ESG focused indices to help investors monitor the performance of "good corporate citizens" and which also serve as the basis for many mutual fund and ETF products. 

What is Impact investing? - Impact investing is the most recent addition to the mix and has tended to be focused on hyper-local activities that directly affect a cause in a local community (e.g. CRA lending programs, community farms, local affordable housing, etc.) Because this is a local activity, it is a relatively fragmented market and more difficult to access without significant time and resources. This is not a mainstream asset class as of yet, but there are more and more investment options appearing every day. 

While this primer is intended to be educational, it only scratches the surface of values-based investing. It is a dynamic market segment that we expect to grow and evolve as more investors realize that investing for good can be good for their finances. Wherever you fall on the spectrum of values based investing, Ebersole Financial can help you find a solution that is right for you. Please contact us today to schedule a review of your portfolio and to discuss your values and how they can be incorporated into your investment strategy.