Episode 57 – The Scoop on Value-Based Investing


The Scoop on Value-Based Investing by Astra Financial

Do your investments align with your ethical values? This question plays into the idea of value-based investing – investing in companies that take environmental, social, and governance issues into account.

There are a lot of sneaky companies out there that come across as environmentally friendly. However, you have to be careful!

Join me for this week’s podcast as I discuss responsible investing and how you can create a portfolio that aligns your values with your financial goals. Click here

Show Notes:

Hi there. Welcome back. Okay, question of the day, “What the heck are ESGs?” Today I’m going to share a little bit about environmentally friendly investing and some things to consider. ESG, now that’s an acronym that you’ll probably see. It stands for Environmental, Social, and Governance. The trend to invest and choose investments that consider these factors as part of their analysis is growing. This is a hot topic. 

Responsible investing is not a new theme. It’s been around for years. I can think of a particular company that has been targeting this product for,  jeez, I don’t know, like 12, 15 years. However, questioning a company’s sustainable business practice it’s becoming more and more common. And the language that we’re using, you know, in talking about responsible investing, social governance, these are, these are more modern things that have percolated over since, you know, those other products I was talking about 12 years ago. Mainstream companies are using these factors as well. 

I personally think that a generation younger than me is holding me more accountable for this change. My daughters are definitely my conscious right now. For example, they have me trying to change my garbage bags at home from plastic to paper. Great idea.  I’ll let you know how that works out for me. I’ve already had a few fails, and I’ve upgraded to the paper bags that are food disposal paper bags because they’re kind of lined with this waxy so that things won’t fall out. So, hoping that prevents a few of the messes I’ve had to clean up, but call it guilt, accountability, whatever term that is as a society, I think we’re starting to become more and more aware and trying. And so, this is that natural evolution, I think in trying to put our money into places that make us feel good that we’re making a difference. And this is important, and it’s a personal factor for everybody. It’s not going to be the same importance and value across the board. But it is something that if it’s starting to percolate and it’s something that you’re wanting to do, then you’re going to have to start to do a little bit of research. 

The investment world is definitely tapping into that accountability and guilt of us wanting to do some right things. Our investments that have equities, meaning that’s investing in companies that already have to have a standard that abide by the laws and rules. The fund managers will analyze them, and they’ll analyze this company to make sure it’s a good investment. Now, when wanting to invest green, a person will want to make sure that those companies are doing things to help the environment.

So that’s where you can hone in and be a little bit more specific because these companies are already having to go through a strict abiding of rules and laws. And so, they already have to have the governance piece. They already have to have the social piece. And so, really, it’s about honing in now if you want that environmental piece. Investing green, you’re going to want to find a company that is actually transparent and doing something that’s going to make a change.

Here starts the problem though, every day, a new product is being launched, and just like low-fat foods, they are not necessarily good for you. The chemicals and packaged so-called low-fat foods are sometimes more unhealthy than the real version of the food. It’s great marketing in the diet world. I mean, I’ve fallen prey to that. I’ll buy a low-fat something. But look at the ingredients. They’re actually things that are bad for you, but you know, they can market it low fat. 

Environmentally friendly investing might be a little bit like that. There are so many hybrid products starting to pull at our heartstrings that without digging deep, it might just be great marketing and advertisement. And so I think the good news is that yes, they’ve been around for, you know, 10, 12, 15 years. We’ve seen wanting to have green investing, but now with public awareness and education, they’re actually being held to some more stringent rules and actually saying, “Okay, you know, outside of the marketing, just like low-fat food, what are you actually doing that is right?”

So it’s popular, it’s confusing, and I’m going to add that it’s actually controversial. For example, an investment company that I’m not going to name, very popular in Canada in the US, had an ETF product that wanted investors to join the environmentally sound product. Sounds good. Right? The name of this product, you know, it’s going to help save the world. It’s green, you name it, however, marketed. But this ETF included Kinder Morgan Pipeline, Exxon, Chevron. So, no matter what your personal opinion is about those companies, it’s just misleading without more information. And so, you know, I want to put aside the debate about, you know, oil and Chevron and the pipeline.

If you didn’t actually start to peel back that onion and you bought it, that ETF and you invested in it just for the name of it and what you thought the mandate was, and then you see that they actually have holdings in these companies. If that’s a problem for you, you will have felt misled. So at first glance, with the name, people click it and buy that product because it’s pulling at our hearts. October 2021, that was confirmed in Time Magazin, so I’m not making it up. I wanted to give you that reference so that you can go back, find that and look up that article. The amount of people investing in products that are labelled as an ESG fund has risen over the year. So 569 billion in investing in 2010 to 16.5 trillion in 2020. But guess what? The regulations have not increased. So that just tells me we need a little bit more policing in these products. 

There are rarely perfect funds in any of these types of investments. Our personal beliefs are subjective, and it would be hard to weed through all the marketing hype without a professional and expert looking at it. And so that is where, as a financial planner, I am earning my fee, my transparent 1% fee, because I’m actually weeding through the crap and garbage that is being just marketing. And, and you know, I have more resources and tools than probably most other people of being able to log in and have access to be able to actually pull up, “Okay. Let’s dig deeper and see, what is this actually investing in?”

 As a consumer, just sitting at our computer, it’d be kind of a very daunting task all alone. But if you’re going to do it, you need to do some research and make sure that company and that actual specific product is in line with how you want to invest.

There are everyday companies that we know really well that are trying to do their part. The key is to ask questions. Know what you’re invested in, and do your research. And so if you’re gonna try and fall into the environmentally friendly, into the green investing, do your research. Holding companies to these standards is not going anywhere.

When I meet with fund managers that are analyzing the environmental impact, the social impact, meaning community human rights and diversity. These are checkboxes on everyday companies. And so, there’s a company I’m specifically thinking of that is not labelled green. It is not labelled environmentally friendly, and it’s not touching at the heartstrings of green investing.

But when you look at some of the companies they hold, these companies aren’t necessarily into sustainable energy. But they’re doing everything they can to reduce their impact, and they’re making changes. And so they’re actually leaders in there. And so, the social impact in that community movement, they’re trying, they check off the box. Governance,  When you look at governance in a company, that means corruption, lobbying, politics, the whistleblower schemes, you name it. So there’s more to it than just the environmental piece as well. There’s that social and governance. This is all relevant. 

So I guess my takeaway for you today, as a starting point, you can ask yourself this question, “Is my portfolio aligned with my ethical principles?” Know what you’re invested in. Do you know what you’re invested in and why? 

This will help. This will help you start with that step that you want to take. And then, the next step is to actually take the time to research and pull up why you would want to invest in that certain product and what their companies are. And then, if it reaches your mandate of environmental impact, what are some of the companies and is it specific?

That’s your takeaway. Just start asking that question. Is it aligned with your ethical principles? Do you know what you’re invested in and why? And then, start thinking about some of the ways that you want to match your money with your values.

That’s it. That’s all I got for you today. Any questions, send me a note at [email protected].