Last week I unrolled our copy of the Wall Street Journal and saw a picture similar to this, with a title reading “Wildfires Erupt Anew in California, Forcing Evacuation.”
I am pretty sure that the property owners in Orange County who are being forced to evacuate think climate change is a real thing.
Over the past year, there has been an increased focus on socially responsible investing.
Socially responsible investing is the practice of investing money in companies and funds that have positive social impacts.
There is a whole range of ways you can invest using this lens:
- Investing in stocks or funds that have a higher ESG (Environmental, Social Governance) rating.
- Investing directly in companies and programs that are focused on producing things like windmills and solar panels in an effort to mitigate climate change.
- Do a “negative screen,” choosing not to invest in fossil fuel companies, gambling companies, companies that produce tobacco and alcohol).
And many others.
We are really excited about this…and a little concerned.
- We are excited about the fact this movement is getting more traction – that people are beginning to really vote with their dollars and invest more intentionally.
- However, we are concerned about the fact that not all of those in the financial services industry are genuinely interested in the underlying principles, and rather just see this as the hot new trend, and a way to gather more clients and more assets. This is called “greenwashing.”
It’s true, socially responsible investing is not a pure science – and there is a lot of nuance and complexity that goes into this.
For example, we use a rating software where Adobe has a score of 96 and Google has a score of 89 (with 100 being the highest). Some might question this – and understandably so – especially with the December 3rd news that Google fired one of the few black female employees – one of their top Artificial Intelligence researchers – for an email criticizing the company’s treatment of minority employees.
How does Google get such a high rating? It’s complicated – there are numerous categories our software assesses:
- Community – How much a company supports philanthropy and volunteerism? What does the company’s supply chain look like? Where are they sourcing their materials?
- Environment – What are the company’s resource management policies? Do they report these policies?
- Governance – How diverse is the board? How much does the company lean into leadership ethics and transparency?
- Employees – How diverse is their workforce? What kind of benefits does the company offer – for example, liberal paid time off for things like family care?
Over time, Google’s score will likely go down, reflecting this recent incident. In the meantime, again, it’s complicated because the company does a lot of things right.
As a Certified B Corp, we are big believers in building a business beyond just having a profit motive. We have been screening the investments in our client portfolios for years, again with the understanding that it’s not a perfect science, but wanting and needing to put a stake in the ground.
We encourage everyone to think through this lens. Just pick one issue that you are passionate about, and dig into it – maybe it’s employment practices and if you own Google, you would re-think your investment because of the recent incident outlined above. Maybe your issue is climate change, and you think fossil fuels are a detriment to the environment so you would consider selling or reducing your investment in companies like Chevron or Exxon. (Note: Talk to your advisor before making changes to your investment to assess other factors such as capital gains.)
If you want help thinking through this, reach out. We are here to help think through this important topic. Contact us to learn more.
Alexis Advisors, LLC is a registered investment advisor with the Commonwealth of Virginia. Nothing in this communication should be construed as advice. Advice can only be provided after signing an advisory agreement. Contact your advisor prior to making financial decisions.