131. How to Align Your Investments with Your Values

This week, let’s chat about how to make your money work for both you and the world. From environmental sustainability to gender equality, learn how to screen out harmful companies and support those actively solving societal issues. Let’s also talk about how to leverage your shareholder voice to drive positive change. Tune in for actionable tips on making your investments a force for good while still keeping an eye on returns.

Links from today’s episode:

Sustainable Investing: An ESG Starter Kit for Everyday Investors by Kylelane Purcell and Ben Vivari

https://www.businessexpertpress.com/books/sustainable-investing-an-esg-starter-kit-for-everyday-investors/ 

ICYMI another episode you might enjoy:

Episode#124 What to ask a financial planner if you want them to consider your societal values

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Website https://www.progressivepockets.com

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Transcript

Welcome to Progressive Pockets! I go by GG, that’s short for Genet Gimja. This is a show about the power of our money to reflect our values and build the world we want. You and me, every day people. We’re not billionaires but our money has power too. So let’s use that power.

Today’s episode is about how to align our investments with our values.

Some people call this sustainable investing, others call it impact investing, ethical investing, I tend to call it socially responsible investing because I sense that it’s the term most people immediately understand. Whatever you call it, we’re talking about looking at your investment portfolio and then thinking about what your societal values are and trying to bridge the two.

I think, for a long time we were expected to just put up with whatever effects corporations had on our communities. We were asked to ignore the environmental and social costs like pollution, deforestation, and labor exploitation. The investment industry has historically turned a blind eye to these "externalities" in pursuit of profits.

But we've seen the consequences play out - climate change, human rights crises, growing inequality. Short-term thinking and a narrow focus on share price has allowed companies to get away with all kinds of harms.

This is unsustainable. 

These companies are powerful because they have so much money, but they have our money. We are the shareholders. We get a say.

As investors, we have a unique opportunity to change the paradigm and hold businesses accountable. By directing our money intentionally, we can demand better practices and create a more sustainable future.

So how do we do this through our investments? 

We can start by understanding what kind of factors determine whether a company is sustainable or not. In the investing world, you’ll often hear people talking about ESG factors - environmental, social, and governance criteria.

Environmental covers things like carbon emissions, water management, and environmental policies. Social includes labor practices, product safety, and community impact. And governance looks at board diversity, corporate ethics, and shareholder rights.

These ESG factors are directly tied to a company's ability to manage risks and maintain a competitive advantage long-term. Businesses that ignore sustainability issues open themselves up to regulatory penalties, supply chain disruptions, loss of consumer trust, and more.

So ESG scores are a reflection of how risky a company is behaving in terms of those three categories- environmental, social and governance factors.

So by investing in companies with better ESG ratings, you may be investing in companies that also are better for the planet and our communities. I do want to be very clear that an ESG rating is not a social goodness rating. It’s not a rating of how socially responsible a company is. An ESG rating does not mean that a company isn’t harmful to the planet or our people. It just means that they, by some measures, take fewer risks in those 3 areas.

Because ESG is a rating of the risks that a company is taking in regards to environmental, social and governance issues, the data shows that companies with strong ESG practices actually tend to outperform their peers financially. 

So we can invest in a better future while also pursuing solid returns.

Okay, so now we understand why socially responsible investing is important and what factors we might consider. The next question is - how do we actually put our money behind companies that better for our communities?

There are a few main approaches we investors can take:

• Thematic funds focused on specific issues like clean energy or gender equality. You may have heard episode 111 where I took a look at an investment that is meant to be anti-racist. This is a baby step to get started on investing more in line with your values. You can start with one of these funds that have been put together. There are so many index funds, ETFs, depending on your employer there may be a 401K option that is socially responsible. This is a starting place. You could think of this type of investing as harm reduction. We’re weeding out the companies that are the most extractive and exploitative.
• The next step is to think about Impact investments that aim to generate positive social/environmental impact alongside returns. So this is going beyond harm reduction and looking for companies that are leading the way on solutions. If animal exploitation is one of your hot button topics, you can invest in companies that are trying to pave a path forward, you heard about some of these companies on episode 126 about vegan investing. Or maybe your thing is gender equity, or racial equity, or affordable housing. You can invest in those companies that are working to solve the problems. And you can decide, maybe you’re comfortable with accepting lower returns because you value the societal impact these companies can have. This can represent a paradigm shift. For a long time we were encouraged to seek the maximum returns no matter the societal cost. But we can decide that once we have our retirement safety net built, we can opt to move some of our retirement savings into less aggressive but more sustainable investments. Or we can make that decision even before we are set for retirement, we can decide.

No matter which route you choose, you’ll want to look under the hood and analyze a fund's actual holdings. There's some "greenwashing" with funds trying to capitalize on the sustainable investing trend without truly walking the walk. There’s a book I like that’s short and clear and has my favorite explanation of how to check for greenwashing- it is called “Sustainable Invseting” by Kylelane Purcell and Ben Vivari. I have it on my list to do an episode synthesizing that book.

Wherever you decide to invest, I want to encourage you to be an engaged shareholder. So voting when resolutions come forward, or putting together resolutions and being a part of organized efforts to influence the companies that rely on our shareholder dollars.

Without a ton of extra work, you could easily create a portfolio that is a mix of ESG index funds for broad exposure, along with some thematic funds dedicated to areas you’re particularly passionate about like renewable energy and gender lens investing. Your portfolio could avoid any funds with major fossil fuel holdings.

The idea is to find investments that resonate with our personal values and priorities. It's an ongoing process of learning and refining as more data becomes available and as more investment products become available.

Socially responsible investing is still an emerging field with a lot of complexities to navigate.

One of the challenges is the lack of standardization in ESG data and ratings. Different evaluators sometimes come to very different conclusions about the same company based on their unique methodologies. So the same company might have two different ESG ratings based on who evaluated them.

There's also the reality that few companies are perfect across all ESG issues. You may find yourself having to prioritize which factors are most important to you - like emphasizing environmental over social criteria, or vice versa.

And even the most ESG-friendly companies may have some unsavory practices or products buried in their supply chains. We have to make tough choices about where to draw the line.

That's why being an engaged shareholder is so important. Let’s not just set-and-forget our portfolios. It's crucial that we stay informed on the companies we're invested in, vote our proxies thoughtfully, and consider filing shareholder resolutions.

Ultimately, socially responsible investing is just one piece of a holistic approach to living out our values with our money. We have so many tools at our disposal- our shopping, charitable giving, and even how we bank can create systematic change.

At the end of the day, the money in our portfolios represents power. Power to shape the behavior of businesses. Power to support solutions to our biggest challenges. Power to create a more sustainable, equitable world for all.

So I encourage you to take one first step today toward aligning your investments with your values, no matter how small. Switch to a more ethical 401k option. Open a brokerage account and buy some shares of companies you truly believe in.

It's not about perfection - it's about making intentional choices and constantly striving to do better. Over time, little by little, our collective action as investors creates ripples of change.

There are so many incredible resources out there to help get started, from books to websites to investor networks. I’d encourage you to sign up for the Progressive Pockets newsletter if you haven’t already. Emails come out around once a month and it is free. Send an email to progressive pockets at gmail dot com to subscribe or you can go to the website progressive pockets dot com to subscribe there.

So to recap, here’s what we covered today:

• Investing along with our values is one of the tools in our toolkit to live out our values.
• The first step is to pick a focus area in terms of your values. Companies are often evaluated on their environmental, social, and governance issues so that can be a good place to start. For example, you might decide to focus on environmental sustainability or gender lens investing.
• To get started, some investors weed out the most harmful companies. There are tons of index funds and ETFs and all kinds of funds from all of the big players that do this, they weed out the most harmful companies. So you can definitely get started by picking one of those funds.
• When you’re ready, the next step can be to invest in companies that are actively trying to solve some of our societal problems. For example companies that are trying to mitigate climate change.
• Whichever method you choose- weeding harmful companies out, screening positive companies in, don’t forget your voice as a shareholder. Vote when you can, put forward resolutions to demand that these companies do more than take our money, they also hear our demands.

If you are working with a financial professional of some sort, or you’ve been thinking about hiring one, you may enjoy Episode#124  What to ask a financial planner if you want them to consider your societal values

If you want to support this show, please share this episode with someone who you think cares about this topic too. Word of mouth is still how podcasts grow. So don’t hoard this knowledge all to yourself LOL

Let’s end with a quote…

“Power concedes nothing without an organized demand” Charlene Carruthers

Let’s talk again soon!