Navigating the World of Values-Aligned Investing

Consumers everywhere are becoming more informed, aware, and responsible investors, exploring ways to align their investments with their values. Strategies that meet these needs—known by a variety of names, including values-aligned, socially responsible, sustainable, green, impact and ESG investing—have now attracted more than $12 trillion dollars.

Because of the increasing popularity of values-aligned investing, advisors need to educate themselves about the concept and help clients navigate this complex and often misunderstood approach. 

Luckily, we have people like Sonya Dreizler to help make sense of it. Sonya is the founder of Solutions with Sonya, through which she partners with financial services companies to drive successful rollout, adoption, and expansion of impact investing, Environmental, Social and Governance Data (ESG), and Socially Responsible Investing (SRI) solutions. Her clients include Registered Investment Advisors (RIAs), Broker Dealers (BDs), custodians, mutual fund families and fintech firms. She is a former financial services CEO with 15 years of industry experience. 

For XYPN Diversity Committee’s next Quarterly Conversation, Sonya will provide a primer on values-aligned investing, including why and how you should add it to your practice She’ll also dive deeper into the progress that still needs to happen to make the SRI world more diverse and inclusive. Here’s a preview of what she’ll cover. 

Alphabet Soup

You’ve likely seen the acronyms ESG and SRI, as well as heard terms like impact investing, sustainable investing, and green investing.

Are they all the same? If not, what are the differences? And when should I use each term?

"Vocabulary can be a hurdle to adoption of this type of investing,” Sonya said. “Let's get clear on the language we use, so we have a common understanding and then we can get to the fun part—implementing!”  Sonya offers the following explanations.

ESG: ESG is short for “environmental, social and governance data.” Asset managers evaluate performance in these three areas as well as traditional financial metrics to understand the risks and opportunities an investable company faces. The way investment managers use ESG data varies widely from company to company.

SRI: SRI stands for “socially responsible investing.” However, some professionals have kept the initials and substituted new words: “sustainable, responsible, and impact investing.” SRI has historical roots in investing and divesting according to religious values. Typically, these strategies invest in companies that do well by people and planet, as well as lending to underserved communities. The key takeaway is that SRI tends to express values. The values may be those of the client, general values for a fund or thematic values (investing in renewable energy, for example). 

Impact investing: The term impact investing has historically been used to refer to private investments in companies with environmental or social good embedded in the mission of the company, as well as lending to underserved communities. In the last few years, as demand for all types of values-aligned investments has risen, this term has been applied more broadly, often referring to public equities, muni bonds, corporate debt, and lending notes, as well as private investments. The key takeaway is that impact investing is investing in companies with intention to do good.

Sustainable investing: This is a broad term that might be used in place of one or any combination of the terms defined above. Sustainable is the word that research firm Morningstar uses in its rating systems, so it is common in the mutual fund and exchange traded fund lexicon.

Green investing: Green investing is another broad term that primarily refers to investments with an environmental focus.

Mission-driven or mission-related investing: MRI generally applies to investment strategies employed by foundations that reflect the foundation’s mission and values. Religious organizations also sometimes use this term when they select investments that reflect their religious values.

Ethical investing and values-based investing: These broad terms describe investments that reflect the ethics or values of the investor. Although different investors may have different values, generally, the terms are used to describe investment philosophies similar to SRI, impact investing or a combination of the two. 

“It’s important to have a shared understanding of these terms so advisors and consumers alike can have access to this type of investing impact,” Sonya said. Sonya will provide more insight and resources to help you with this terminology and implement this approach into your practice in the webinar. 

A Lot of Progress, a Long Way to Go

Overall, impact investing drives social and environmental progress through investments while creating competitive returns. Although the industry has had a positive impact on our world, it still has a long way to go when it comes to diversity and inclusion.

“For decades, our industry has engaged meaningfully with companies on research, advocacy, benchmarking and problem-solving to improve ESG outcomes for the planet we all share,” Sonya said. “Yet our data shows that most of our firms are maintaining exclusionary, predominantly white environments that are failing to employ people of color.”

Sonya and colleagues Danielle Burns, Hannah Lucal, and Renee Morgan recently wrote a whitepaper that examines the impact the lack of diversity has on the industry and the steps that might be taken to solve the problem.

“We believe that creating a world in which all people have opportunity to live lives that are rich, equal and just has long been a driving force for the SRI and ESG investing community,” Sonya said. “By attending to what gets invested and divested, and engaging in shareholder advocacy, the SRI community has the tools and opportunity to create positive changes in corporate behavior when it comes to diversity, equity and inclusion.”

The authors note that until our industry addresses its racial inequities, our work will continue to fall short. Here are some of the bleak statistics they found:

• White people, and particularly white men, are over-represented in our data set relative to US population data.
• Zero firms surveyed are employing any indigenous or Native American people.
• Black people make up 14% of the US population but only 7% of the surveyed funds’ employees (most of which can be attributed to black-led firms).
• Latinas/Latinos comprise 18% of the US population but only 3% of employees at the firms surveyed. 

“It is important to look at who is at the table (diversity), what tools are being used to build a new table (equity), and whose voices are heard at the table (inclusion) so we can deal with systemic racial inequities,” Sonya explains. 

The authors conclude by encouraging SRI companies to take an active and participatory stand to create a more racially equitable workplace. They can start by examining how the industry became racially exclusionary and by assessing the impact of that lack of inclusiveness. Transparency can help. SRI companies and organizations should collect and disclose the gender and racial breakdown of their workforces and boards.

As the values-aligned investing industry continues to grow, it’s important that we, as advisors, continue to learn and grow with it. Join us on Thursday, April 25 at 1:30pm CT to learn about how you can implement this type of investing into your practice, and why you should.

About the Author
Brian Thompson, JD, CFP® is the founder of Brian Thompson Financial LLC. His firm specializes in helping LGBTQ couples set and achieve their goals, protect and grow what they already have and guide them to the lifestyle that brings them fulfillment and happiness. Brian also serves as President of XYPN's Diversity Committee, whose mission is to lead the industry by attracting, supporting, and developing a diverse group of Financial Planners so our community can embrace our differences and make us all more knowledgeable, more accepting, and better people.