“What progress in ESG investing inspires you today?

In exploring this question we reached out to leading experts in the ESG investing industry to find out their responses, and this is what we found…

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERPeter Fusaro, Partner & Head of ESG and Impact AV Group and Founder, Wall Street Green Summit

ANSWERThe Covid crisis has created a unique opportunity to rebuild society where human health and welfare come first. I am particularly inspired by the hundreds of thousands of young people throughout the world who are ready and capable of helping to do the heavy lifting required to accelerate sustainibility in clean energy, sustainable agriculture, clean water, a regenerative economy, and social justice. ESG investors get read for this inflection point!

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERBob Dannahuser, CFA, FRM, CAIA & Senior Advisor, The Investment Integration Project

I’ve had a front-row seat to sustainable investing over the course of my career and have seen it evolve from something driven more by marketing to something beginning to become rooted in investment analysis and strategy. And while cynical voices remain (and are well worth listening to, for they make us better), I’m gratified that environmental issues in particular are much more mainstream.  The pandemic, an awful episode with catastrophic impact for so many, offers an opportunity for social issues to join that trajectory to become a more routine component of what drives investor decisions, as the systemic, disruptive effects of income inequality, worker rights, and a fragile healthcare system become more prominent to more of us.

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERChris Stearns, CFP & Financial Advisor at Conte Wealth Advisors, LLC

ANSWER”The welfare of any segment of humanity is inextricably bound up with the welfare of the whole. Humanity’s collective life suffers when any one group thinks of its own well-being in isolation from that of its neighbours…” – The Universal House of Justice.

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERDr. Gillian Marcelle, Resilience Capital Ventures 

ANSWERESG investing has great potential to contribute to sustainable development and improved livelihoods for persons living in communities with high climate risk and vulnerability. I am seeing slow movement in mainstream and alternative financial institutions, understanding how an ESG investment philosophy can be good for both the bottom line and society. Finding ways to accelerate these changes keeps me motivated and inspired.   

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERJeffrey Gitterman, Co-Founding Partner and creator of Sustainable and Impact Investing Services at Gitterman Wealth Management, LLC

ANSWEROne of the things lacking in ESG data has been information on racial inequality at the corporate level for both pay equity and management opportunities, as well as board seats. George Floyd protests have exposed this lack of disclosure and we are starting to shed some light on better corporate disclosure. You can’t manage what you don’t measure.

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERWilliam Burckart, Co-Founder and President, The Investment Integration Project; co-author of 21st Century Investing: Redirecting Financial Strategies to Drive Systems Change (2021)

ANSWERMore and more, investors—big and small, individual and institutional—are beginning to extend their embrace of ESG investing to include the context (or systems) in which they operate. In doing so, these investors are charting a path forward for the financial community to better manage and solve the complex and interconnected social and environmental challenges like income inequality and climate change that are increasingly threatening returns across all asset classes.

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERDorri McWhorter, CEO, YWCA Metropolitan Chicago

ANSWERIt is inspiring to see investors actively seeking new impact investing strategies across different asset classes. At the same time, we are witnessing social impact organizations actively creating new vehicles and strategies! I am excited that engagement is coming from both the finance industry and social impact organizations with the objective to use finance as a tool to accelerate the pace of change.

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERPhil Kirshman, CFA, CFP & Founder at Impact Metropolis

ANSWERI’m inspired by the energy of the next generation, which seems to be significantly more thoughtful about how investment capital will be deployed in the future than their parents and grandparents were. I’m inspired by the rigor with which many are approaching the field today, in terms of evaluation, analysis, and impact measurement of the investable universe. Finally, I’m inspired by the authenticity and commitment of many of the practitioners of the impact investment field, older and younger, who are seeking ways to make a measurable positive difference in the world.

QUESTIONWhat progress in ESG investing inspires you today?

ANSWER Aisha Williams – ESG Investment Advisor, RJK Associates

ANSWERI’m inspired by the continuing shift in attitudes towards investing sustainably as awareness is increasing among younger investors of the source of investment returns, which in turn is prompting a shift towards ESG mandates such as the European Commission’s Action Plan on Sustainable Finance. In The UK, climate risk concerns have prompted the Financial Conduct Authority to consult on proposals that will require financial firms to disclose how they handle climate risk and other ESG criteria. The continual progress in ESG investing, supported by institutional mandates, clearly shows the realization that the adoption of ESG investing needs to be proactive in order to aid in the reshaping of the investment landscape towards responsible and sustainable investing.   

Climate Change and the Rise of ESG Investing

Originially published 01.20.2020

ESG stands for Environmental, Social and Governance factors which are integrated into investment analysis in an effort to provide investors with long term performance advantages. ESG is about economic value and has recently emerged as an alternative to SRI (Socially Responsible Investing) which incorporates ethics and social concerns to bring about changes that resonated with individual investors. The original form of SRI focused on exclusion or “negative screening”, allowing investors to reject companies they disliked for ethical and values-based reasons.

The movement from SRI to ESG investing was driven by investors’ desire to maximize value whilst deliberately including and investing in innovative companies working to solve social problems. The development of SRI had some proponents relabeling the acronym to “Sustainable, Responsible and Impact” investing, prior to the rise of ESG.

Although ESG metrics have yet to become part of mandatory financial reporting, companies are increasingly disclosing their efforts through “sustainability” reports. An annual risk survey of business and political leaders, recently published ahead of the World Economic Forum (WEF) to be held in Davos 21-24 January 2020, ranked climate-change-related threats as the top risk facing the world. Borge Brende, president of the WEF stated, regarding climate change, that “the cost of inaction far exceeds the cost of action.” One of the top concerns was cited as “domestic political polarization”, identified as a barrier to effective climate action to transition to a greener, low-carbon and more sustainable economy, which is now an “existential challenge for everyone on this planet.”

No less a “person of the year 2019”, Greta Thunberg, will be attending the WEF in Davos and one might hope for another acrimonious interaction between her and the President of the USA, Donald Trump, following the pair crossing paths at the UN Climate Change summit in New York last year! So … OK Boomer, are we about to be led by Young Climate Change Activists such as Greta? Or will her plea to end the fossil fuel economy now “I want you to panic” be forgotten in a similar manner to the demise of the Occupy Wall Street Movement?

So far, it appears that some of the most powerful Index Fund leaders are taking ESG seriously and are bringing to market a number of exchange traded funds (ETFs) that choose and weigh their investments based on ESG criteria. BlackRock Inc., the world’s largest money manager with over US$7 Trillion of assets under management (yes folks that is Trillion), is led by Larry Fink, a billionaire ranked as #28 on the 2018 Forbes list of The World’s Most Powerful People. Fink recently warned company boards to step up efforts to address climate change, whilst forecasting a “fundamental reshaping of finance”. To this end, BlackRock indicated that it intends to increase its offerings of ESG ETFs to 150 over the next few years and specifically add some that would screen out fossil fuel companies! Fink, however, hedged his bets somewhat by allowing that the transition to a low carbon economy will take decades, and that BlackRock will continue to hold exposures to the hydrocarbon economy as the transition advances.

On the individual Corporate level, such companies as Microsoft and Amazon have both announced plans pledging to be net zero carbon by 2030 and 2040 respectively. Microsoft has committed to invest US$1 Billion into carbon reduction and removal technologies, including support for Carbon Engineering, a British Columbia-based developer of Direct Air Capture technology that removes carbon dioxide directly from the atmosphere.

Can You Really Do Well And Do Good At The Same Time?

Originally published 07.16.2020

There has been a long-simmering debate in investing circles: Can you do well and do good at the same time? Aren’t they mutually exclusive?

For years, many investors believed that to avoid companies and industries whose activities contradicted their values, they would need to give up some returns. Or they believed that constructing diversified, professional portfolios meant living at odds with their personal beliefs. The conventional wisdom was that practicing environmental, social and governance (ESG) investing came at the expense of financial performance. That’s no longer the case.

A September 2018 report from DWS found a positive correlation between ESG and corporate financial performance. This means businesses that treat workers well, are responsible stewards of the environment and prize diversity can gain a competitive advantage.

Investors Take Notice

Unsurprisingly, individual investors want to have a hand in shaping corporate behaviors around ESG issues, and they’re making their preferences known. The amount of money under professional management associated with sustainable and responsible strategies has increased significantly in recent years, representing one in four dollars in 2018.

Corporations are responding to this dynamic. A couple years ago, 86% of companies in the Standard & Poor’s 500 published sustainability or corporate governance reports, according to the Governance & Accountability Institute; in 2011, just one in five did.

Defining The Terms

Today, the term ESG is commonplace. An earlier iteration of this investing strategy went by the name of socially responsible investing (SRI). While ESG and SRI share many traits, they are not the same. SRI is largely an exclusionary approach, calling for the avoidance of certain industries and practices like tobacco, firearms, gambling and adult entertainment. ESG, on the other hand, takes a more expansive view and aims to reward companies that are displaying positive behaviors.

The strategy starts by looking at companies throughout the capital markets and their financial performance. ESG is among a host of due diligence considerations that has the potential to drive or inhibit performance.

Because ESG is such a broad framework, it can mean different things to different people. At our firm, when we use the term ESG, we are referring to three main ways portfolio managers practice it:

1. Sustainability and shareholder impact: This is the most active form of impact investing, where large institutional investors try to change companies from the inside through their ownership stakes. They participate in actions like shareholder resolutions or taking board seats.

2. Socially responsible investing: This involves filtering out companies based on their involvement in controversial activities and products.

3. Integrated risk management: Some investors might not be comfortable excluding entire industries or companies. They prefer a portfolio tilted in favor of companies with better sustainability ratings, while underweighting others.

Building Your Impact Portfolio

Many investors have a growing sense that the planet is in crisis, and they want to do something about it, whether that’s on issues of climate change, human trafficking, or diversity and inclusion. Seeking out companies that are working to solve these big challenges is increasingly the way for many to express their views.

Today’s screening tools allow advisers to analyze funds and strategies through an ESG lens, giving investors greater control over the impact their money has. Some investors are deeply concerned about climate change. Others feel equally passionate about diversity and inclusion. Still others give equal weight to a broad range of issues, and they want to own shares of companies that are aligned with those concerns.

Advisers can take those considerations into account when constructing portfolios. They can also provide ongoing monitoring to further ensure strategies continue to comply with the ESG principles that earned them a spot in a client’s portfolio in the first place. 

What’s more, it’s now possible to build diversified ESG portfolios, because nearly all asset classes contain funds and strategies that apply these principles — even those that don’t explicitly market themselves as ESG.

Ready For Impact?

As ESG investing continues to evolve, it is important to work with a trusted adviser to help navigate the process of finding the right investment for you. Just know that you don’t have to compromise on your personal beliefs to pursue your financial goals. ESG and impact investing give you an opportunity to put your money to work in a way that aligns with your values — without compromise.

Content in this material is for general information only and not intended to provide specific advice or recommendations. Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Private Advisor Group, a registered investment adviser. Private Advisor Group and Bleakley Financial Group are separate entities from LPL Financial.

“Doing Well by Doing Good” Environmentalism and the Role of Responsible Investing

Originally published 07.17.2020


Financial markets make the world go around, whether we like it or not. The most ambitious goals of the Paris Agreement cannot be achieved without the successful integration of environmental considerations in investment decisions. From large green bonds to smaller investments by individuals, ensuring funds are invested responsibly provides both opportunities and challenges for the future.

This paper explores the rapidly growing role of responsible investing in combatting environmental, social, and governance (ESG) issues, focusing specifically on the environmental aspect. It supports the view that investors play an essential role and have influence through their financial capital to change the status quo. Moreover, there are significant opportunities for strong returns for investors in a low-carbon economy, especially as these new industries are in relative infancy and have large growth potential.

Equally important is for investors to realize that responsible investing is not simply about making the “correct” decision morally or ethically but also about limiting climate risk across many industries represented within their portfolios. Lastly, the challenges that come with investment changes are discussed, including getting buy-in and promoting companies and investors to have greater transparency.

The Need for ESG Investing and Opportunities, and Progress So Far

The UN Principles for Responsible Investment (PRI) defines responsible investing as “an approach to investing that aims to incorporate ESG factors into investment decisions, to better manage risk and generate sustainable, long-term returns.” While they include governance of businesses and impact on social issues (such as human rights), environmental challenges have taken the spotlight. Nonetheless, for investors that have been successful in their current approach, one obvious question remains: Why should I adjust my portfolio to integrate ESG considerations?

Recently, climate change has ranked as the highest priority ESG issue faced by investors. This is unsurprising as we continue to see climate risks undervalued, leading to billions of dollars in damages annually. A key consideration lies in the interconnected nature of climate risks, which means there are knock-on effects that threaten to seep into many sectors as extreme weather events are not confined to a single industry. Losses are also difficult to compare because they can be measured in terms of economic performance or physical loss of assets.

For example, Frame et al studied the economic impacts of Hurricane Harvey, finding an average estimate of damages of around US $90bn. Using an event attribution framework to determine the “fraction of attributable risk,” they concluded that at least US $30bn (and possibly up to US $72bn) in damage was due to human-induced climate change. Perhaps most significant of all is the fact that these enormous estimates only include direct damages and do not account for associated issues such as mortality and displacement that are extremely challenging to accurately quantify in monetary terms. This damage affected real estate and the insurance industry, led to the loss of income for thousands of businesses, and impacted many other areas.

In New Zealand, researchers calculated the loss caused by two droughts in 2007 and 2013 and found that they jointly reduced GDP by US$3.4bn, of which around US $568m can be attributed to climate change. Extreme weather events wreak havoc throughout supply chains and across industry boundaries, creating the potential for enormous financial losses. While encouraging investors to make the morally and ethically correct decisions may be preferable, getting them to adjust their portfolios according to potential financial risk is far more realistic. Therefore, educating investors on how climate risks manifest and how they can be financially detrimental may be more likely to facilitate real change in investor behaviour.

It is also imperative for investors (and businesses) to realize the potential positives of integrating climate-conscious decisions into portfolio allocation decisions. Kim and Lyon (2011) studied how companies’ share prices were affected by participation in the Carbon Disclosure Project (CDP)––an organisation that supports businesses and governments measuring and managing their climate risks through engagement, reporting, and disclosure. They found that participation alone was not enough to raise share prices, but CDP participants increased shareholder value when the probability of greater climate change regulation increased, to the tune of US $8.6 billion. In other words, investing in climate-conscious companies can increase shareholder value. 

ESG sceptics often argue that responsible investing cannot withstand turbulent economic conditions. However, the performance of ESG funds has outshone their non-ESG competitors during the coronavirus pandemic, largely because of risk management forming a key part of ESG practices. Traditionally, “safer and reliable” investments in areas such as travel and energy have suffered greatly, with multiple airlines and oil companies filing for bankruptcy and tens of thousands of workers losing their jobs. That said, many would argue that investing specifically with ESG aims in mind carries additional, unnecessary costs, such as opportunity costs. Yet, Fu et al (2020) argue against this idea, saying that ethical investing, such as in a carbon-free portfolio, has no performance cost, despite having a significantly smaller pool of shares to select from.

Returns, risks, and costs have shown ESG investments to be solid choices. Therefore, it is of little surprise to see that industry giants have begun to shift their portfolios. Earlier this year, Vanguard, responsible for over US $6 trillion in assets, called on companies to limit their environmentally destructive practices. Having such a significant stake in many large companies comes with influence in boardroom voting decisions, a position they can use to leverage climate decisions. They have pushed oil giant Exxon to do far more and were instrumental in passing a resolution that increased Chevron’ transparency, arguing that transparency “will help articulate consistency between private and public messaging in the context of managing climate risk and the transition to a lower-carbon economy.” This is an encouraging step given the notable lack of transparency and often conflicting public statements and private actions of oil companies. Elsewhere, Vanguard’s competitor BlackRock announced earlier this year that they will no longer be investing in companies that do not work towards significantly reducing their emissions. With US $7.3 trillion of assets under management, BlackRock could set the example for other asset management companies to follow.

Well-known asset managers changing their behaviors is not the only area where progress can be made. Sovereign wealth funds (SWF) provide opportunities to invest vast sums responsibly. By definition, an SWF is a state-owned investment fund comprised of pooled money from a country’s reserves. These funds are used for investment to benefit the country’s economy and citizens. The largest SWF is Norway’s Government Pension Fund Global (GPFG), set up in 1990 to ensure wealth gained from oil and gas could be used to benefit the country in the future. The fund controls over US $1 trillion, growing by 19.9 percent in 2019––an equivalent of approximately US $180,000 per person. They state that sustainable development is a precondition for return on financial investments in the long term.

This year, the fund announced a plan to sell their stake in oil and gas exploration firms and shift towards climate-conscious alternatives. Indeed, the fund has divested from many companies since its inception in response to issues such as environmental damage, production of harmful substances (e.g. tobacco), and human rights abuses. Managing such a fund comes with power and influence that sends two signals to the market and companies: money will not be invested if they behave detrimentally and existing investments will be pulled should they fail to meet targets. A survey of sovereign investors found that 60 percent now incorporate a top-down ESG policy.

Lastly, there is a need for ESG investing because the relative infancy of low-carbon businesses and technologies provides ample opportunities for growth. Although renewable energy has gained traction in recent years, the industry as a whole is small compared to traditional fossil fuel companies. With many companies competing to solve challenges such as energy efficiency and large-scale renewable access at a reasonable price, investors have the chance to profit from technological innovation in these areas. As more governments commit to pursuing a clean recovery in response to coronavirus, investing in low-carbon companies will likely yield better results, both in terms of financial gain and reputation.

Stranded Assets, COVID-19, and Challenges Ahead for ESG Funds

Responsible investing is a hotly debated approach that comes with multiple challenges. For example, divestment strategies currently used may be unsustainable in the long-term and the few funds that are ESG-specific lack the necessary liquidity to make them attractive opportunities. Moreover, simply getting investors on board with caring about ESG approaches creates difficulties; most investors care about their returns far more than how those returns are achieved.

To facilitate meaningful action in this area, it is vital to change the narrative to inform investors that environmental disasters and climate change create enormous risks. Shifting such perceptions requires better education of and better engagement with both institutional investors and individuals.

One way to create change is through pension contributions; pension funds around the world account for tens of trillions of dollars. But this approach is not without its problems. Most contributors have limited choice, and little interest, in how their money is used. In recent years, the number of ethical pension funds has increased significantly but, on the whole, people do not usually change from the default contribution. It would be beneficial for employers to encourage people to explore the option of responsible investing as it could have a significant impact on the investment decisions of the pension fund management company.

Unfortunately, limited ESG investing choices are not confined to pensions. Individuals wishing to invest separately in pensions do not, for the most part, look specifically at ESG factors. Moss, Naughton, and Wang (2020) studied the investing habits of retail (nonprofessional) investors by observing their behavior in response to disclosures or press releases involving ESG measures. They found no routine difference in standard portfolio adjustments. Retail investors are more likely to change their portfolios in response to earnings reports. Again, highlighting that income and profitability trump ESG considerations for most investors.

For big investors and companies alike, a major area of concern is stranded assets. The University of Oxford defines stranded assets as those “that have suffered from unanticipated or premature write-downs, devaluations or conversion to liabilities. They can be caused by a range of environment-related risks and these risks are poorly understood and regularly mispriced.” To achieve the goals of the Paris Agreement and limit warming to 2°C ( preferably 1.5°C), research by McGlade and Ekins (2015) suggests that a third of oil reserves, half of gas reserves, and over 80 percent of coal reserves must remain unused. Therefore, continued investments into fossil fuels and policymakers’ instincts to rapidly exploit their territorial fossil fuels are, in aggregate, inconsistent with their commitments to this temperature limit.”

Naturally, the thought of leaving such a vast amount of resources untouched and unused will be seen as a lost opportunity for companies in those industries and the investors that support them, especially with the high sunk costs spent on such infrastructure. Some estimate stranded assets in energy alone costs around US $900 billion. However, a 2020 study by Sen and von Schickfus analyzed a German climate policy proposal aimed at stranding fossil assets. They found that investors are concerned with the risk of stranded assets but believe they will be compensated for them, therefore “they do not believe that they will be financially affected – neither by general unburnable carbon risk nor due to specific policy proposals implying the stranding of assets.”

Furthermore, although the risks of stranded assets are now reasonably understood and acknowledged, the potential losses are not priced into company valuations. Such financial risks are compounded as costs of capital for energy companies are already rising significantly and with continued stagnation in the price of their shares, the threat of hundreds of billions in lost value is growing. In June, as a result of the waning demand caused by the COVID-19 pandemic, Shell announced that the value of their assets may fall by US $22 billion. Likewise, BP told investors that they may lose US $17.5 billion in assets.

As economic and travel activity begins to pick back up, so too will oil demand. However, times are changing. With many governments committing to using this time as an opportunity to rebuild better, the landscape of the oil industry may have permanently changed. The shift to a low carbon future was highlighted recently when BP sold its petrochemicals business in a move that would cut CO2 emissions. Groups have called on the oil giant to invest the money from the sale in renewable energy.

Whether investors wish to take a chance on continued support for big players in the energy business is yet to be seen. The reputational risk may outweigh potential financial benefits. At a time where information is so freely available and news travels fast, those actively involved in reckless actions or the investors supporting them will likely face the wrath of the public. For example, the Deepwater Horizon oil spill by BP in 2010 in the Gulf of Mexico led to an outpouring of public criticism. This catastrophe led to an enormous sell-off that even now, a decade later, the share price trades at around half of the pre-spill level.

Lastly, as mentioned previously, an enormous challenge that befalls investors is a lack of transparency, both in companies’ ESG disclosures and announcements and in decisions of asset managers. Getting reliable and trustworthy information to use as a basis for making responsible investment decisions is difficult. Public commitments do not necessarily equate to real change. Investors may fall victim to greenwashing––a process whereby companies publicly announce climate measures to seem more environmentally friendly than they are––making highly polluting companies seem far more attractive as an investment. For example, Shell announced US $300 million in investing in natural ecosystems over three years. On the surface, this is an enormous figure. However, when you consider they spent US $25 billion on oil and gas in 2018, it makes it considerably less impressive. Digging around into annual statements, you will find that the little reference to environmentally-friendly practices is placed alongside fracking and LNG extraction, two processes that carry their own environmental burdens. It is a fact that the cash titans for energy companies are oil and gas, both of which are key components of plans for future growth.

Concerningly, Shell’s actions are not especially egregious in the context of the wider industry. The International Energy Agency (IEA) published a report on energy generation in 2019 and found that capital expenditure for oil and gas companies was comprised of 99.2 percent fossil fuels and 0.8 percent renewables. Therefore, it is hard for investors to differentiate between high-carbon companies making a genuine attempt to change course and those doing the bare minimum to save reputation while continuing harmful practices behind the scenes. This is not to say that companies are incapable of change nor is it meant to criticize those attempting to do better.

Transparency within climate and environmental decisions and disclosures remain an issue. While PRI found that 591 investors signatories totalling US $49 trillion in assets voluntarily reported on climate risk indicators in 2019, an increase of 111 investors from the year before, a survey by ShareAction found that 39 percent of asset managers make no mention of climate change in public policies and only 21 percent have a dedicated policy. The same organisation asked asset managers about their approach to biodiversity within investment decisions and they found that 0 percent integrate such concerns.

Equally, information on voting on climate change and environmental decisions is limited. 45 percent of asset managers do not publicly disclose their votes and only 17 percent explain their choice. Naturally, this makes it very difficult for investors to understand the stance that asset managers take. As mentioned previously, Vanguard has taken steps recently to prioritize climate action but historically they supported climate resolutions only around 10 percent of the time. To ensure investors have access to good information to make their decisions, greater transparency and reporting is essential. Luckily, several tools and frameworks are in place. For example, the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) has created a voluntary reporting framework and the Transition Pathway Initiative (TPI) tool created by the Grantham Research Institute on Climate Change and LSE is aimed specifically at investors so that they can assess companies on their climate impacts.


Evidence points to the fact that “doing well by doing good” is more than just a cliché slogan that acts as the posterchild for ESG investing. There are real opportunities for investors to gain through exercising social and financial responsibility. This can be done in many ways, from individuals learning about their pensions to voting for resolutions at annual general meetings to not falling for empty promises from environmentally destructive companies. Real responsibility does not lie solely in financial benefits for clients but rather the impacts and outcomes of investments on the public as a whole.

Nonetheless, challenges lie ahead. Many investors care about their bottom line and high returns more than behaving responsibly. Gaining buy-in from institutional investors and managers responsible for large portfolios will be difficult. They must navigate the minefield of conflicting interests and potential smokescreens of information. High-carbon companies must not cover their detrimental actions with much smaller positive actions towards environmentalism. It is just as important for investors not to fall for it.  

Marcus Arcanjo is a Research Fellow at the Climate Institute. He holds an MSc in Development and Security from the University of Bristol and a BSc in Business Economics.

A Guide to Donor-Advised Funds: Five Factors

Originally published 08.24.2020

Donor-advised funds (DAFs) are a unique type of charitable giving vehicle that require a specialized approach to strategic asset allocation decisions. At a basic level, DAFs need to be open to unlimited donors, each of whom can have unique charitable intentions, time horizons, and risk tolerances. As a result, a sponsoring charity may need to provide a spectrum of asset allocation recommendations built for the diverse objectives and constraints of its donor base.

So what are the basic features of DAFs and what are the critical factors to consider in the asset allocation decision for a given donor? And what might some sample donor scenarios look like?

Donor-Advised Funds: The Basics

A DAF is a separately identified fund that is maintained and operated exclusively by a section 501(c)(3) nonprofit organization, also known as the sponsoring organization. Once a donor makes a contribution, the sponsoring organization has legal control over that contribution, while the donor retains advisory privileges with respect to distribution of funds and the investment of assets in the account.

One key advantage DAFs offer donors is that the sponsoring organization handles the investment along with its administrative and compliance responsibilities and its associated costs. That said, while the donor retains advisory privileges and the sponsoring organization will generally agree to donor requests, the donor does relinquish ultimate control of the assets. This is why it is especially important that sponsoring charities exercise responsible stewardship over those assets.

Managing Investment Policy: Factors to Consider

When managing any individual investment program, certain factors come into play when making decisions around proper portfolio positioning. For DAFs, this requires creating a spectrum of asset allocation recommendations built for a range of different objectives and constraints. The following chart illustrates what this spectrum of asset allocation options might look like.

Below we outline five key factors that may be important to address during the asset allocation discussion with a donor.

1. The Donor’s Intentions and Time Horizon

Understanding a donor’s intentions is the first priority. Specifically, is the donor planning to distribute all of the funds immediately or over the near term? Do they intend for the fund to last for several years, a lifetime, or several generations?

The answers to these questions are critical, especially as they relate to time horizons. All else being equal, the longer the time horizon, the greater the ability to take on risk. Why? Because the longer the time horizon, the better the assets can “ride out” short-term market volatility, which allows for higher equity allocation.

For donors who intend to distribute the entirety of their fund within a few years, a portfolio with a less risky asset allocation — with a high level of shorter duration, investment-grade fixed income, for example — might be appropriate for them. On the other end of the spectrum are donors who want to grow their assets over 20 years without making any major distributions along the way. For this cohort, a portfolio with a more aggressive asset allocation, with, say, a heavy dose of public equities, could be a better fit. Donors who intend to make an annual distribution in perpetuity — let’s say 4% of the market value of their portfolio each year — would likely fall somewhere in the middle of the spectrum. For them, a more balanced allocation that aims to preserve purchasing power with room for modest growth might be a good option.

Of course, framing these conversations with donors in the right way can be among the most important inputs in the investment process and can help instill confidence. Donors need to know that your organization cares about their intentions and has the skills and knowledge to help them achieve their objectives.

2. The Return Objective

The return objective should be based on the donor’s intentions and time horizon: If the intention is for the fund to maintain a distribution in perpetuity while preserving purchasing power, the chosen asset allocation will need to be able to achieve a minimum level of return.

Conversely, if a donor plans to distribute the fund over the next three years, the donor might have lower return requirements and not need to pick a portfolio with aggressive growth objectives and the higher volatility that often comes with it.

There is a wide range of return objectives possible — and the different portfolio options typical to a given DAF provide for these different objectives. There is no one-size-fits-all, but a donor’s intentions and time horizon can help them determine the right return objective for their specific situation.

3. Risk Tolerance

The donor’s aversion to risk should be gauged from both the objective and subjective perspective. On an objective level, the appropriate amount of risk relative to the donor’s return/distribution targets makes it more likely that those targets will be met. On a subjective level, a donor’s personal risk tolerance can help determined how they will respond if an account experiences outsized or unexpected levels of volatility. Will such outcomes sour their outlook on the DAF as a charitable giving vehicle?

While determining risk tolerance might be equal parts art and science, including risk tolerance in the portfolio selection process can help to balance the objective and subjective considerations relevant to determining the right portfolio for a given donor. Specifically, risk tolerance helps with setting and managing expectations for the performance of the portfolio ahead of time, and can be instrumental in measuring and defining success over time.

4. Liquidity

DAF distributions can be requested at any time, so liquidity is an important consideration with the investment of DAFs. Given the potential for an erratic frequency of distributions, we believe DAF pools should only be invested in liquid, readily marketable securities. Specifics around distribution needs may also factor into asset allocation decisions given the need to balance staying fully invested with the ability to liquidate investments for the cash necessary for distributions.

5. Unique Circumstances

Responsible investing assets have grown remarkably over the last decade. As a result, many DAFs have provided responsible investing portfolio options to their donors. A portfolio option that requires investments screen for environmental, social, and governance (ESG) criteria would be one iteration of this.

Responsible investing can appeal to donors who are looking to align their investment portfolio with their personal values or intentions. It is important to understand what your donor base might be interested in and provide an appropriate investment portfolio option or options.

These five factors form a framework by which donors can be matched with a portfolio consistent with their objectives and constraints. So what are some sample donor scenarios and how might they map to different portfolio objectives?

Sample Donor Scenarios

As we have discussed, we feel it is important to have a range of portfolio options available to match the widest range of donor intentions and objectives. As you might expect, these portfolios should run the gamut from conservative to aggressive and provide a reasonable number of investment pools. Reasonable means neither so few that donors cannot choose one that fits their needs, nor so many that the management of the DAF as a whole becomes difficult or the pools end up too small to take advantage of economies of scale.

In the table below, we provide some examples as to how different donor time horizons and intentions might map to a given portfolio orientation. To be sure, these are only examples and are meant to be directional rather than explicit recommendations. The ultimate decision is best made with a firm understanding of a given donor’s intentions and the actual portfolio pools that are a part of your DAF.

Time HorizonDonor IntentionReturn Objective/ Risk TolerancePortfolio Orientation
1–3 yearsA donor would like to give out money immediately to address a specific need, such as supporting a food bank during an economic downturn.Low/LowConservative
1–10 YearsA donor would like to distribute the fund in annual installments to a charity over a set period, such as seven years.Medium/LowBalanced
PerpetuityA donor and future generations would like to have money available to make periodic distributions to charity with no set frequency or distribution percentage.Medium/MediumBalanced
Donor’s Lifetime or PerpetuityA donor would like to make a charitable distribution of 3.5% of the market value of their fund, while preserving purchasing power, in perpetuity.Medium/HighGrowth
20-plus YearsA donor would like to make a donation now and have it grow tax-free for 20 years before making a donation to a nonprofit organization of their choice.High/HighAggressive

Source: PNC


As a charitable giving vehicle, the DAF can satisfy a wide range of donor objectives and constraints. Its popularity is therefore understandable. Having an investment policy framework that can accommodate a spectrum of donor intentions can help donors succeed in meeting their objectives and allow a sponsoring organization to have an effective and long-lasting charitable solution for its donors.

All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Dispelling The 5 Myths Of Sustainable Investing

Originally published 08.17.2020

Whether they want to combat climate change, support social justice, or encourage corporate responsibility, investors can do well by doing good. Sustainable investing—which looks at environmental, social, and governance (ESG) factors, along with financial analysis—is on the rise. 

The year 2018 saw $12 trillion in U.S. assets under sustainable management, up from $639 billion in 1995, according to a Forum for Sustainable and Responsible Investment report. Investments that make a positive impact accounted for one in four dollars of total U.S. assets under professional management in 2018, the report states. 

But despite the surge of interest in sustainable investing, many financial advisors and individual investors are still slow to embrace the strategy, in part because of lingering misconceptions about investment interest and performance. According to the report cited above, nearly three-fourths of America’s $12 trillion in sustainable assets are managed on behalf of institutional investors. A huge pool of retail investors is still being left out.

Why? In part because both they and the people they pay to advise them are too often prey to myths. Here are five of the biggest myths about sustainable investing strategies.

Myth 1: Sustainable strategies sacrifice performance.

The performance trade-off myth is probably the most entrenched misconception, according to a New York Life Investments guide. In reality, sustainable investing strategies tend to perform as well as or better than conventional strategies.

A 2015 academic analysis of over 2,000 studies showed that in about 90% of the cases studied, companies with strong sustainability profiles either matched or outperformed their traditional counterparts.

While many advisors and individual investors mistakenly believe that sustainable investing means leaving money on the table, the opposite is often true.

“What you see is that sustainable companies tend to perform better,” says Jennifer Tarsney, head of practice management for New York Life Investments.

Myth 2: The key to sustainable investing is excluding “sin” stocks.

Historically, sustainable strategies focused on avoiding investments that clashed with the investors’ worldviews. Think alcohol, tobacco, firearms, or casino stocks. 

Instead of just cutting, take a wider view. That means considering sustainability and ethics factors throughout the investment process, such as how a company is governed, or in the recent case of Facebook, how it responds to advertiser boycotts. This more positive approach, supported by the United Nations-sponsored Principles for Responsible Investment (PRI), is also more likely to characterize the future of sustainable investing.

“Companies that are really focused on corporate governance, and the things that can really throw a company off track, can be more sustainable,” Tarsney says. “Evaluating sustainability factors can really uncover gems that other investors may be missing because they’re not looking at it through this lens.”

Myth 3: Sustainable investing is a fad.

Ethically informed investing has actually been around for hundreds of years. Religious orders, for example, have long sought complementarity between their money and their beliefs. A fad it’s not.

And far from fading away, sustainable investing is burgeoning today. 

In 2018, for example, Morningstar identified about 350 sustainable funds, for a 50% jump over its 2017 tally. Self-identified sustainable funds attracted record net flows in 2018 and continued to grow in 2019, according to New York Life Investments. 

The growth in sustainably invested assets around the globe “completely diminishes” the idea that it’s a passing fashion, Tarsney says.

Myth 4: Only Millennials and women are into sustainable investing.

Don’t believe the stereotypes, says Tarsney. Investors as a whole really are interested in the social impact of their investments. 

Yes, younger investors are prominent among these. A New York Life Investments study found that Millennial investors are twice as likely as other investors to put money into companies or funds that prioritize social good. But in terms of dollars invested, the primary sustainable investors are the people who run big institutional funds. Because they invest large pools of assets, they have to be more careful about considering risks, including environmental and social risks.

In addition, over 70% of Americans had at least a moderate interest in sustainable investment, according to a 2019 Morningstar study. 

Research by New York Life Investments additionally found no statistically significant gender differences in preferences for sustainable investment. It isn’t just women who care about sustainability.

“I do think that your average advisor thinks, ‘I’m sitting in front of a 60-year-old male. There’s no way he cares about this,’” Tarsney says. “But that’s just not what our research shows.”

Myth 5: Sustainable investing works only for equities.

The reality is that sustainable strategies work across different asset classes. 

The misconception goes back to the idea that sustainable investing is just about excluding certain categories of stock, Tarsney says. Taking a more inclusive approach lets investors consider other opportunities, such as fixed income assets, as well.

According to New York Life Investments’ investing guide, a third of sustainable investments fell into the fixed income category in 2018. And sustainable fixed- income and alternative assets showed significant growth in 2017-2018, the UN’s PRI indicates.

Tarsney’s team at New York Life Investments is working to educate advisors across the country about the potential opportunities for sustainable investing. 

People are “absolutely open” to sustainable strategies regardless of age or gender, Tarsney says. 

“If you have an opportunity to make money and do good, who wouldn’t want to do that?”

Lisa Wirthman is a journalist who writes about business, public policy and women’s issues.

This material is provided for education purposes only and should not be construed as investment advice or an offer to sell or the solicitation of offers to buy any security.  Opinions expressed herein are current opinions as of the date appearing in this material only. You should obtain advice specific to your circumstances from your own legal, accounting and tax advisors, as applicable.

COVID-19 in Context: Addressing Systemic Sustainability Risks and Opportunities and the Role Social Bonds Can Play

Coronavirus fears have led to a historic collapse in economic activity over the course of the course of the first half of 2020, with leading economies, such as the UK, entering a recession. It’s inspiring to see that the emergence of social justice movements globally is fuelling the demand from society, businesses and investors to identify long-term solutions to address systemic sustainability issues and opportunities, with a focus on human governance, health, safety, security and resilience.

The global COVID-19 outbreak has emerged as a systemic social – health, safety and security – crisis. It threatens the well-being of the world’s population, especially the elderly and those with underlying health problems. In addition, millions of people around the world are impacted, or will be impacted, from the resulting economic downturn and the loss of employment opportunities.

At a sovereign level, there is a growing question whether our social infrastructure, systems and services can withstand this pandemic, now and in the future. Governments are being asked to refocus and adapt their social efforts linked to health and safety, housing, transportation and international collaboration.

And while science suggests that the speed and impact of this crisis have likely been accelerated by the onset of global warming and the destruction of biodiversity and natural habitat, the interconnected and systemic ESG risks and opportunities can be seen across the investment value chain. 

  • For example, some consumer sector companies quickly provided good examples of innovation and adaptation by changing their production pipelines to provide healthcare equipment and services1.
  • However, key questions remain about the global workforce weathering this storm, especially in the context of low-paid and zero-hour contract workers operating within the “Gig Economy”2.

Essentially, the crisis has put the “stakeholder model” of capitalism to the test: COVID–19 has emerged as a test case for multi-stakeholder collaboration on social issues, with challenging trade-off decisions between business strategy, employment continuity and worker health. And as high performance along the social dimension remains difficult to define, let alone to measure, there is a clear need for profound and trusted social and governance data sets3 and dedicated financial instruments.

1See Four Twenty Seven’s blog on Responding to the COVID-19 Crisis: Can Industry Help?, 26 March 2020, http://427mt.com/2020/03/26/responding-to-the-covid-19-crisis-can-industry-help/

2See recent by Vigeo Eiris, From Bad to Worse: How COVID-19 has exacerbated Social Risk in the Gig Economy, 31 March 2020, http://vigeo-eiris.com/from-bad-to-worse-how-covid-19-has-exacerbated-social-risk-in-the-gig-economy/

Are social or sustainability bonds the answer to address public funding gaps?

Over the last decade, many green and sustainable bonds were focused on addressing risks posed by climate change. However, in the he last 5 years, social, sustainability and Sustainable Development Goals (SDG)-linked bonds4 have emerged as new instruments to address social issues and funding gaps linked to healthcare and community services.

Over the course of 2020, these instruments have also been used to assist in coronavirus pandemic response efforts and are seen by investors, issuers and by the Green Bond Principles standard setter, ICMA5, as tools that can potentially improve private and public sector preparedness.

It hence comes as no surprise that combined social and sustainability bond volumes are driving this surge and could total US $150 billion by the end of the year, with ”E”,”S” and “G” bonds combined even heading for a record size of US $375 billion.6 If concerns over “social washing” can be addressed through Second Party Opinions or other transparency and assurance assessments, social and sustainability bonds may be well on track to make a difference for real economy outcomes and social resilience.

Further references:

For more information on COVID-19 and implications for managing systemic ESG risks and opportunities, please listen to Moody’s Corp’s Sustainable Finance webinar and a recent COVID19 systemic ESG risks and opportunities webinar supported by Moody’s Corp.

3 See e.g. Vigeo Eiris COVID-19 data set, launched in 2020: http://vigeo-eiris.com/vigeo-eiris-releases-covid-19-dataset/

4 This reference includes a broad definition of labelled and non-labelled sustainability bonds, including sustainability-linked and KPI-linked bonds.

5 See ICMA, Q&A for Social Bonds related to Covid-19, https://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/Social-Bonds-Covid-QA310320.pdf

6 Moody’s Investors Services, Q2 2020 Sustainable Finance Outlook, August 2020: https://www.moodys.com/login?ReturnUrl=http%3a%2f%2fwww.moodys.com%2fresearchdocumentcontentpage.aspx%3f%26docid%3dPBC_1233316


I’m starting with the man in the mirror

I’m asking him to change his ways

And no message could have been clearer

If you want to make the world a better place

Take a look at yourself then make a change

– Man in the Mirror – Michael Jackson

The Socially Inspired Investor in this issue focuses on the very inspiring ways the investment community has come together to make the world a better place.

Socially inspired investing has made a difference.

Why we are finally moving in the right direction.

We know because in this, our 5th issue, we are told by the pros why they are optimistic, inspired, and more empowered than ever before – and why we should be as well.

Our Spotlight On section poses the question to leaders in the investment community, “What progress in ESG investing inspires you today?”.

Surely there is a lot of agreement. They cite changing social attitudes passionately fueled by newer generations, the recognition from authoritative sources that companies that lean toward social and environmental awareness tend to do better. And then of course there is a myriad of technologoical advancements that now allow the world to operate on a lower carbon footprint.

In our SII podcast hosted by Pat O’Neill, we hear from Mr. Georg Kell himself, a pioneer in the ESG world and author of the upcoming book Sustainable Investing: A pathway to a new horizon definitely shares his inspiration. Georg, brings to life the maturation of the socially inspired investing movement.

No doubt daunting challenges still lie ahead. But we can face them, not with exasperation from what still needs to be done, but with satisfaction from what we have been able to accomplish so far. Let’s keep the faith together.

Thank you for spending time with us and feel free to share the Socially Inspired Investor with others you think may be interested.