What’s in Your ESG Parts I & II

Originally published: April 26, 2019

When it comes to socially responsible investing or what is now being widely adopted as ESG – Environmental, Social and Governance, ask yourself if you really care about all of these categories equally? The methodology that almost all ESG evaluators use to identify and score, or rate, potential ESG investments generally relies on averages within each of these components.

Scoring is useful if you care about overall adherence to ESG but this may not mean what you think it does. 

So far, the investment community has decided investors need to be interested in all these things if you want to invest in a sustainable way. Be aware though that ESG standards alone do not necessarily reflect specific values or concerns, or what we refer to as areas of concern. And good luck trying to find a filtering system that can. At least for now that data is mostly available at an institutional level.

This becomes an interesting conversation when deciding on which investment approach you should choose. Are you looking for an average representation of all three E, S and G? Or are you primarily concerned about specific areas such as global warming, controversial weapons, or gender issues? Defining the values you wish to include in your investment strategy can result in many different approaches.

For decades the rivers that fed socially responsible investing were well stocked with an adequate array of investments considered to be socially responsible, mostly in the mutual fund world. Well known firms such as Calvert, MSCI, Ariel and TIAA were known for this. Today the bulk of ESG investing seems to be toward passively managed socially responsible index funds from firms such as Vanguard, T. Rowe Price and JP Morgan, with more and more coming out each day.  

No doubt the decision to pursue socially responsible investing is a very personal one. You may have decided that you would even allow for a slightly lower return or increase in volatility – which by the way is most definitely not a given. Kiplinger cites Morningstar analyst David Kathman who says that “There is no evidence that shows ESG or socially responsible investing helps or hurts performance.”  “Over the long term, it probably evens out,” he added. [i]

Perhaps at this point you have already found one of the many socially responsible ETF’s or mutual funds available to investors- well done, you did it! 

Well…maybe, not so much. It turns out that it is much more complicated than that.

Consider that of the tens of thousands of mutual funds and ETF investments available in the marketplace, roughly only 25% would receive an “above average or better” rating from the ESG rating firms. That’s still a tremendous amount of options for a socially responsible investor to choose from. How can you go wrong?

However, if for example you didn’t want your money to support controversial weapons, tobacco or animal testing you’d be surprised to find that a majority of these supposedly highly filtered ESG funds and ETF’s do have significant exposure to these activities. Just because one does not want to support these activities it doesn’t mean that they aren’t acceptable to the ESG rating companies.

In part 2 of What’s in your ESG? we’ll take a deeper dive into ESG certification and standards.

Special thanks to Saad Tahir for providing critical research for this article.


[i] Kiplinger 7 Great Socially Responsible Mutual Funds


What’s in your ESG?  Part 2

In Part 1 of What’s in your ESG? we reviewed some of the basics of ESG investing and options available for the ESG investor. In this Part 2, we’ll examine in greater detail the questions surrounding ESG certification and options available to the investor.

A leading consumer “seal of approval,” or another certifying standard governing ESG investing, does not yet exist. But as the demand for ESG investing continues to grow, the outcry for industry standards becomes louder. And the demand for ESG investing is definitely there, and the financial community is listening. In fact, a 2017 study by Morgan Stanley reports that over 75% of investors are interested in sustainable investing. Among women and millennials, interest in sustainable investing runs even higher, with 84% of women interested and 86% of millennials interested in ESG investing.

The need and demand for objective standards is here. But in what form will they come? Will it be marketing, driven by the underlying companies themselves (think low fat, green coloring on packaging, etc.) or will there be a one day “Gold Seal of Approval” from a trusted independent third party? Hard to say since so many of the investment criteria are subjective. What investors need is more data to make better decisions.

Although objective certification for the consumer may be just around the corner it is encouraging that a number of investment professionals have already signed on to a program sponsored by the United Nations based on their Principles for Responsible Investment (PRI). The basic certification criteria for this is primarily based on consistency and disclosure. It’s a start, and while certification is gaining momentum, it is not quite there yet to be employed for ones personalized ESG investment portfolio.

The European Federation of Financial Analysts Societies (EFFAS) may be getting closer and has defined topical areas for the reporting of ESG issues and developed Key Performance Indicators (KPIs) for use in financial analysis of corporate performance.

So, while not perfect, it’s a good start. What should you do? Should you wait until there is more readily available data? With many different stakeholders, universal certification may take many years, and only seems to be getting more complicated as time move on. But if investing based on your values is your goal, you certainly can begin to implement a strategic investment strategy today. 

If there are specific areas of concern that you want to focus on it may be best to begin with individual securities that would give you the most control. However, if you do choose individual securities be sure to prudently diversify enough in order to fill a holistic asset allocation model that can include the proper allocation of bonds (you can choose “green bonds” representing specific environmental funding) as well as equities of companies with a good sustainability record.

When considering a dive into individual securities a good way to start is to consider a particular industry. Technology companies, surprisingly enough, are generally good for the “E”. Socially responsible and Governance are more problematic though since these qualities tend to be more subjective. There are also increasing concerns over gender diversity and other related issues that are further defining Governance ratings.  

Simply accepting an industry label that a fund or a company’s investment scores well in overall ESG does not mean it necessarily is right for you, your specific values or your investment goals. We all look forward to, and welcome, more analytical tools and better ways to use them to reach our values-based investing goals. 

The best thing you can do is ask plenty of questions and be purposeful in your selection process. Maintaining an open dialogue with your trusted financial advisor is paramount to helping one achieve their goals and objectives. This is a pathway to helping you get you closer to a more focused ESG solution while understanding that the ESG landscape is ever evolving – and that is a good thing.

Special thanks to Saad Tahir for providing critical research for this article.

Why Smart People Don’t Recognize Financial Infidelity

Originally published: January 29, 2020

I have to admit I never recognized the term “financial infidelity” until recently, but it does make sense. The expression recognizes the blindness many of us have in relationships to the spending habits of partners and the effect it has on our own finances.

Take the case of a recently widowed or divorced individual who has finally in her or his opinion met the person of her or his dreams. In all other respects the person is kind and supportive. It is difficult to believe that, where there has been honesty in other aspects of the relationship there could be a darker issue to confront — which is the issue of money. There are extreme examples of this but, frankly, the person in question might not even recognize there is a problem. Where a favored investment, activity, hobby or relationship has taken control over decision-making or where a person has just been habitually careless with paying bills, the issue can come to the fore with catastrophic effect and it can be very unexpected.

What brought this question to my attention initially was a July 2019 article in “Next Avenue,” an excellent web publication mostly for those 50+ but useful for those who are younger. The article was titled “Why Smart People Don’t Spot Financial Infidelity in Their Relationship. The question is “why don’t we?”

One suggestion in the article is that “unfortunately people often hand off financial management to a partner when they do not feel confident managing money.”

Reading between the lines you might infer that, if, in a prior relationship — whether it ended in divorce or death — your partner handled money issues and you did not develop the confidence or the motivation to become actively involved, you might again pass that job over to your new partner.

Another possibility, although not suggested by the article, is that you might regard your relationship in terms of division of responsibility. It could be expressed as something like “he handles the outside bills and investments and I handle the household” or “my wife always managed the money. She was better at it than I was.”

The article noted that financial infidelity includes among other things, “things like holding secret accounts and taking out credit cards without a partner’s knowledge” and says, “it is shockingly common.” I might add that, if your spouse becomes suddenly enamored of a certain stock to the extent of investing most or all of your funds in it or spends a great deal of time trading on line without any real direction or understanding or gambles excessively, these are obviously signs of a potential serious problem.

One suggestion in the article is that “unfortunately people often hand off financial management to a partner when they do not feel confident managing money.”

Reading between the lines you might infer that, if, in a prior relationship — whether it ended in divorce or death — your partner handled money issues and you did not develop the confidence or the motivation to become actively involved, you might again pass that job over to your new partner.

Another possibility, although not suggested by the article, is that you might regard your relationship in terms of division of responsibility. It could be expressed as something like “he handles the outside bills and investments and I handle the household” or “my wife always managed the money. She was better at it than I was.”

The article noted that financial infidelity includes among other things, “things like holding secret accounts and taking out credit cards without a partner’s knowledge” and says, “it is shockingly common.” I might add that, if your spouse becomes suddenly enamored of a certain stock to the extent of investing most or all of your funds in it or spends a great deal of time trading on line without any real direction or understanding or gambles excessively, these are obviously signs of a potential serious problem.

Here are some tips suggested by the article to combat the possibility of “financial Infidelity.”

1. Don’t let go of the financial reins. While it is noted that “it’s not uncommon for couples (married or not) to combine assets, buy property together or open joint accounts … having one partner be in charge of finances isn’t a problem. What can cause issues is when the other one doesn’t pay attention to what’s going on with their money…”

2. Learn money basics. The article relates “if one partner is more skilled (in money management) it’s even more important for the other to gain understanding of the basics of investing, debt and financial planning…” The article notes “There really are no silly questions when it comes to personal finance.”

3. Don’t be shy. This one is critical. One partner could be reluctant to bring up money and feel it could be interpreted as a lack of trust. The article notes “Trust isn’t automatic; it’s owned and built between a couple.” It recommends you insist on getting access to all joint accounts and passwords for all of your partner’s accounts and states “financial transparency between partners is imperative.”

As an elder law and estates attorney I often see problems where one person handled the funds and dies. The difficulty in locating accounts, investment advisors, passwords and other critical information on death can be a serious problem.

4. Take time to read and understand financial documents before signing. Read what you sign and ask questions. If you do not get a satisfactory answer, do not sign.

5. Consider having a weekly financial check-in with your partner. Suggestion from me: Dinner out or takeout?

Janet Colliton, Esq. is a Certified Elder Law Attorney