The History of This Approach
The roots of Socially Responsible Investing and the incorporation of Environmental, Social, and Governance (ESG) criteria can be traced back to the 1970s. The genesis of SRI can be attributed to a desire among certain investors to align their financial decisions with their ethical and moral values. During this era, concerns about issues such as civil rights, environmental degradation, and labor practices gained prominence, prompting people to seek avenues for responsible investment.
In response to these concerns, SRI emerged as a movement that advocated for investments that not only generated financial returns but also reflected a commitment to societal and environmental well-being. Over time, SRI evolved to encompass a broader spectrum of ethical considerations beyond merely avoiding investments in controversial industries.
The introduction of ESG criteria marked a significant advancement in the integration of ethical considerations into investment decisions. ESG factors encompass a range of issues, including environmental sustainability, social justice, and corporate governance. Investors recognized the impact that these factors could have on the long-term performance and stability of a company. As a result, ESG criteria became an essential tool for evaluating the broader impact of investments on society and the environment.
How Values-Aligned Investing Looks Today
Today, SRI and ESG have become integral components of the investment landscape, with a growing number of investors prioritizing not only financial returns but also the positive impact their investments can have on the world. This evolution reflects a shift toward a more conscious and responsible approach to wealth management, aligning financial success with broader societal and environmental goals.
Building a Values-Aligned Investment Portfolio
With a bit of deliberate intention, your investment portfolio can serve more than one purpose. If you’re interested in values-aligned investing, you might want to:
- Accomplish short-term investment or savings goals.
- Work toward long-term goals like retirement, or a career pivot later in life.
- Create wealth to pass on to your heirs and provide for your beneficiaries.
- Impact the causes you care about to create a brighter future for all.
Additionally, when building your portfolio, there are a few steps you can take to balance all of these goals:
1. Identifying Your Core Values
You should start by identifying what core values you want to embody in your investing and broader financial decisions.
For example, you may decide that avoiding specific industries or companies who don’t meet specific ESG criteria feels right. You may even want to take it a step further and invest in specific companies who are focused on doing impact-oriented work in their industry, or through unique initiatives around volunteer work, charitable giving, community involvement, or diversity, equity, and inclusion (DEI).
Knowing what you value, and how you want your financial choices to support those values, can help you build out a strategy that meets your unique goals and needs.
2. Understanding What’s Available
Once you’ve defined your values, you can start exploring which unique investment strategy works for you. There are several different approaches that professionals and investors take when building out an ethical or impactful values-aligned portfolio. Taking time to educate yourself about what is available can help you clarify a go-forward plan to carry you into the future. A few strategies you might consider are:
Positive or Inclusionary Screening
Strategy: Selecting investments based on positive ethical criteria, emphasizing companies that exhibit strong ESG practices or contribute to sustainable and socially responsible initiatives.
Goal: Actively support businesses with positive social and environmental impact.
Thematic Investing
Strategy: Focusing on specific themes or causes, such as renewable energy, gender equality, or clean technology.
Goal: Target investments that align with your values and support particular social or environmental initiatives.
Impact Investing
Strategy: Seeking investments with the explicit intention of generating measurable positive social or environmental impact alongside financial returns.
Goal: Directly contribute to addressing specific societal or environmental challenges through investment activities.
ESG
Strategy: Integrating ESG factors into traditional financial analysis to assess the overall risk and performance of an investment.
Goal: Consider ESG criteria as material factors in decision-making
There are a multitude of other approaches to SRI such as excluding harmful companies from your portfolio and participating in shareholder advocacy to influence companies’ behavior. These strategies offer investors a diverse range of options for tailoring their portfolios to match their values and financial objectives, and they are really only the beginning of the various approaches available.
Take time to research different options, and consider consulting with a financial advisor who can assist with values-aligned investing to figure out which unique approach is right for you.
3. Setting Your Goals
When you pursue a values-aligned approach to your portfolio, your goals will include both personal financial milestones and impact-oriented benchmarks you want to achieve. Setting these goals can feel tricky because there are so many different items that require balanced priority and attention. You may have short-term lifestyle goals, long-term financial goals, estate planning and legacy aspirations, and a variety of different ways you desire to make an impact.
It can help to “bucket” these goals to clarify exactly what you’re trying to achieve. For example, you could have:
Short Term Goal: Fund your child’s 529 Plan.
Long Term Goal: Retire by 60.
Legacy Goals: Impact the causes you care about, and leave enough of an inheritance plan to your heirs to help reduce their financial burden and set future generations up for success in continuing to give back in a meaningful way.
Impact Goals: Reduce funding toward industries you don’t support (i.e. gambling, tobacco, etc.) and increase funding for industries that are doing good in the world or have well-rounded diversity initiatives within their organization.
Knowing what your goals are can help you determine which values-based investing path is aligned for you, and offer a strong foundation for creating a well-rounded portfolio that keeps all of your goals in harmony.
Remember to Monitor and Rebalance
Regardless of which values-based investing strategy you opt to implement, it’s prudent to remember to monitor and rebalance your portfolio regularly. This is especially important when you’re leveraging SRI or ESG principles, because you need to check in regularly regarding:
- Your portfolio’s balance – Are you appropriately diversified and maintaining the predetermined financial targets for your portfolio?
- Your portfolio’s alignment with your values – Have your values shifted?
- Your portfolio’s alignment with your goals – Beyond basic diversification and rebalancing, are you still investing in a way that is appropriate for your personal financial goals?
Regularly rebalancing and monitoring your portfolio is crucial to ensure that it stays aligned with your goals and values, adapts to changes in the market, and maintains a well-balanced and resilient investment strategy over time.
Partnering With a Professional
Values-aligned investing is not just a financial strategy; it’s a commitment to aligning your wealth with your societal values. From defining your core values to building a diversified and ethically sound portfolio, every step contributes to a financial journey that reflects who you are and what you stand for. Embarking on a values-aligned investment journey reflects a commitment to making money while also making a difference. It’s an opportunity to invest in a future that resonates with your beliefs – contributing to positive change and minimizing harm while seeking financial growth.
Partnering with a financial planner who specializes in values-aligned investing can help you build a portfolio that reflects your unique values and goals. Additionally, an aligned financial advisor can also help you weave your core values into your overall financial life – from spending habits to how you approach tax strategy, and beyond.
At Abacus, we believe that values-aligned investing and financial management is something that everyone should have access to – and that includes you. Want to learn more about how values-aligned investing can help you synchronize your wealth and your ideals? Book a call with our team today.
We’re excited to learn more about what lights you up, and help you build a unique plan that supports the world you want to see.
Sources:
Tom Krantz. “The history of ESG: A journey towards sustainable investing” IBM. 8 Feb. 2024.
