How to navigate the world of sustainable investing ratings


  • Navigating the various ESG scores of mutual funds and ETFs from rating firms can be confusing.
  • Pay attention to the metrics being measured, including materiality.
  • “Material ESG issues are the ones which will cause a company a financial penalty if not handled correctly,” says Jon Hale, head of sustainability research for the Americas at Morningstar.

Sustainability ratings are useful tools for assessing the environmental, sustainability and corporate governance-worthiness of mutual funds and exchange-traded funds.

But how do you navigate between different ratings providers, especially when they can have different results for the same fund?

CNBC looked under the hood at some of the most pertinent issues.

What’s being measured?

″[Ratings] don’t have to agree, because the underlying methodologies are different,” said Larry Lawrence, executive director, ESG products, for MSCI.

To compare fund ratings in an apples-to-apples fashion, one must not only compare methodologies (here is MSCI’s as an example), but also at how the underlying holdings are treated in terms of rating distribution; carbon intensity; transition risks to clean energy, such as companies’ preparedness to do so; diversity metrics and so on, he said.

Another thing to consider when comparing ESG ratings is materiality.

“Material ESG issues are the ones which will cause a company a financial penalty if not handled correctly,” said Jon Hale, head of sustainability research for the Americas at Morningstar. “A typical sustainable fund may avoid investing in companies that don’t rate highly on their handling of ESG issues, but the focus is on which issues are material to a particular company.”

For example, he said, material issues for Exxon include green house gas emissions (environmental), community impact (social), and political lobbying and spending (governance). In the case of Facebook, social material issues have more to do with product and stakeholder impacts, diversity issues and data privacy.

Morningstar’s fund sustainability ratings, illustrated as a scale of 1 to 5 globes, represent the aggregated material ESG risks of the companies in a fund’s portfolio, Hale said.

He added that investors have recently begun to evaluate the ESG impact of sustainable funds, noting that more and more of these are issuing impact reports.

Other ratings providers focus on specific ESG issues right up front.

“We flag the companies that are burning down the Amazon, for example, [while other firms] are rating them,” said Andy Behar, CEO of As You Sow, a non-profit in Berkeley, California, that performs shareholder advocacy focused on ESG issues. “We’re splitting it apart issue by issue.”

A fund could have a sustainable name but may own companies that run private prisons or produce banned weapons — and still perform sustainably, he said.

As You Sow rates funds according to performance on seven issues: fossil fuels, deforestation, military weapons, civilian weapons, gender, private prisons, and tobacco. The organization also features seven separate databases, highlighting each issue area, such as fossil-free funds or gender equality funds.

Some are concerned about the lack of verifiable ESG data being collected.

“Most rating firms are relying on company-reported data or secondary data, which can’t be verified or audited,” said Maneesh Sagar, CEO of RS Metrics, which provides specialized environmental data to ratings firms. “It can also be biased and outdated.

“Right now there is no primary data on the asset level,” he added. “Moreover, raters tend to highlight whoever has the best reporting mechanisms.”

Dealing with divergence

“Nobody does a great job of analyzing sustainability at the fund level,” said Theresa Gusman, chief investment officer, First Affirmative Financial Network, headquartered in Colorado Springs, Colorado. “You’d be surprised at how different the scores could be from each vendor.”

To deal with this, First Affirmative combines different ratings, equally weighted, from MSCI, Morningstar, Sustainalytics and their own proprietary score based on Corporate Knights data. This combined data enables Gusman to ask deeper questions of the fund managers; for example, when many small cap funds have low ESG scores because they report less data.

“It’s expensive to the companies to report all these data — it’s a lot of work — so the scoring gets really skewed,′ she said. “The key is not to use the scores as the definitive answer to whether the fund is sustainable or not.

News Trader

Updated 28 June 2021

What Is a News Trader?

A news trader is a trader or investor who makes decisions based on news announcements. Breaking news, economic reports, and other reported events can have a short-lived effect on the price action of stocks, bonds, and other securities. News traders try to profit by taking advantage of market sentiment leading up to the release of important news and/or trading on the market’s response to the news after the fact.


  • News traders use scheduled announcements to take up positions that profit from short-term volatility.
  • News traders can also trade significant, unplanned events that impact the domestic or global economy.
  • New traders tend to hold positions for a very short period of time as the impact of news usually fades quickly after being made public.

Understanding News Trader

The adage “buy the rumor, sell the news” recognizes that rumors have one effect on a security’s price and news can have the opposite effect. For this reason, news traders focus on trading in the time leading up to the news or immediately after, when the market is still reacting to the news. These periods are characterized by a high amount of volatility that creates an opportunity to profit.

News traders try to profit from the timing or likely content of scheduled news announcements for the most part. When the news is scheduled, as with earnings releases or Federal Reserve meetings, news trading is more about playing the odds on the likely significance of the announcement. In fact, the Federal Reserve has tried to soften the market impact of its proclamations by foreshadowing every major policy decision well in advance, but even these policy signals have become tradable events.

When the news is a surprise to everyone, as in a natural disaster or black swan event, news traders try to position themselves to profit. Sometimes this means playing the volatility or making a call on the immediate directional impact of the news on current price trends.

In most cases, news traders are a type of day trader since they generally open and close trades in the same day.

News Traders’ Tools and Strategies

News traders leverage many different strategies with a focus on market psychology and historical data. Traders may look at historical data, for example, such as past earnings reports, to predict how upcoming news, like an upcoming earnings report, is likely to affect prices. By becoming familiar with specific markets, news traders can make educated guesses as to whether a security will increase or decrease in price following a news report.

News traders can also set up queries and alerts to gather breaking news and correlate it with changes in the price action on a chart. If certain criteria are met, the news trader will then enter a bullish or bearish position depending on the trading strategy. As news is timely and usually short-term in impact, the opportunity to profit only exists for as long as the news is fresh.

A popular strategy used by news traders is known as fading, which involves trading in the opposite direction of the prevailing trend as enthusiasm wears off. A stock might open sharply higher, for example, after a positive earnings announcement during pre-market hours. News traders might watch for this optimism to reach a high and then short sell the stock intraday as optimism wears off. The stock might still be trading sharply higher compared to the prior day, but the traders may have profited from the difference between the highs and lows of the day.

What does it mean to invest ‘ethically’ or with ‘impact’?

Last updated 4.15.2021


While all forms of investing in theory have ‘impact’, for good or ill, funds which carry the label look to ensure the positive impact is measurable.

LONDON: Demand for funds which cherry pick investments with strong environmental, social or governance (ESG) credentials has surged in recent years.

Many of these funds include terms such as ‘ethical’ or ‘impact’ in their names. But what do these words actually mean?

Below is a glossary of the key terms often used to describe investment styles and processes.

In the absence of a global consensus, the two are often used to describe a range of investment approaches used by fund managers to assess ESG issues before choosing to buy or sell an asset. This could mean looking at a company’s climate change preparations, its record on deforestation or its boardroom diversity to ensure it is operating in a way that is socially and environmentally sustainable over time. It also covers the way in which the asset is then managed, for example in the way the fund looks to influence company management on topics of concern.

The most commonly used process, including across funds with no specific sustainability objective, ESG integration is where ESG-related factors are systematically considered as part of the investment analysis conducted by a fund manager as a way to better manage risk and returns.

One of several strategies that explicitly exclude certain stocks or sectors. Commonly used in funds which avoid the so-called ‘sin’ stocks such as companies tied to pornography, weapons, gambling, alcohol or tobacco, ethical investment funds allow an individual to invest in line with their environmental, religious or political values.

While all forms of investing in theory have ‘impact’, for good or ill, funds which carry the label look to ensure the positive impact is measurable. For example, by investing in projects where the financial return is linked to improving literacy rates or health outcomes in the developing world.

As the name suggests, this approach picks companies that perform strongest on ESG-related issues, even if the sector is one that many would consider less sustainable, such as Oil and Gas. Unlike ‘ethical’ investing, which could see investors miss out completely if the sector they eschew surges in value, best-in-class investing allows funds to retain the option of exposure to the sector’s returns.

Often used in index-tracking funds, a ‘positive tilt’ approach would see a fund buy more of the stock of companies in a given index with a good ESG performance, for example on carbon emissions, and less of those with a worse performance.

Stewardship refers to the responsibility of a fund manager to manage their clients’ money in a way that creates long-term, sustainable value. One way they do this is by ‘engaging’, or talking to, the boards of the companies in which they invest to challenge them to perform better on ESG issues.

When words are not enough, fund managers can turn to the ballot box. Specifically, anyone who owns shares in a company has the right to vote once a year on a range of issues including whether or not to confirm the board in their jobs, and to support their proposed pay and bonus plans. In a mutual fund, where many thousands of people may share ownership, the fund manager or the fund management company running the fund decides which way to vote on their behalf.

Racial Justice Investing

Originally published 2.22.2021

What Is Racial Justice Investing?

Racial justice investing is a form of socially-responsible or impact investing aimed at adding investments that promote racial justice, inclusion, and diversity. The idea is to screen for investments in companies that promote these social goals, which can be accomplished in several ways. These may include, among other tactics, owning shares of black-owned businesses or companies with diversity-hiring mandates, and avoiding investments in companies that disproportionately impact communities of color in negative ways, such as gun makers or operators of private prisons.

Among the motivations behind racial justice investing is to recognize institutional investors’ influence and power in the markets, and that the investor community has contributed to and benefited from structurally racist systems and the entrenchment of white dominance among investors and financial sector employees.

Understanding Racial Justice Investing

Impact investing, which aims to generate specific benefits that promote social gains, has grown in prominence over the past several years. The point of impact investing is to put money and investment capital to work for the good of society, often targeting traditionally underserved communities or sectors. This can be done by investing, for example, in nonprofits that benefit the community or in clean-technology enterprises that benefit the environment. Impact investing attracts individuals as well as institutional investors including hedge funds, private foundations, banks, pension funds, and other fund managers.

One form of impact investing involves promoting racial justice, equality, and inclusion. Known as racial justice investing, the purpose is to leverage both institutional and retail dollars to invest in ways that advance this and other anti-racist causes. Racial justice investing can take on many forms, including seeking investment in black-owned businesses or startups with founders who are people of color.

Financial firms and institutional investors are also increasingly looking internally to their own practices and employee demographics, signing racial justice pledges and issuing statements to publicize their position. Others are actively fostering racial diversity and inclusion, while also favoring vendors and suppliers that have made similar pledges. According to Forbes, “within their portfolios, institutional investor actions span from promoting board diversity to making investments that support job and wealth creation for underrepresented minorities.”

Public Pledges

In 2020, and especially following the social movements that responded to police brutality and killings of unarmed black men in particular, several financial firms signed on to public pledges admonishing persistent racism in America and seeking to use their influence as institutional investors to instead promote diversity, inclusion, and justice. 

The 2020 Belonging Pledge, put forth by the group Confluence Philanthropy, seeks the following call to action among its signatories: “We commit to discussing racial equity at our next investment committee meeting. We will move our agenda forward on this. We will share our next steps and results (perhaps privately), so that we can help to identify industry-wide barriers and the technical resources required to advance the practice of investing with a racial equity lens.” As of February 2021, 187 institutional investors, ranging from hedge funds to pensions, have signed on to the Belonging Pledge, representing nearly $1.9 trillion in assets under management (AUM).

A second pledge was issued by (RJI). Its Investor Statement of Solidarity to Address Systemic Racism and Call to Action states that “As investors, we stand in solidarity with protesters and call for the dismantling of systemic racism and recognize our responsibility to act. We recognize that the investor community has contributed to and benefited from racist systems and the entrenchment of white supremacy… We acknowledge the deep roots of structural racial inequity. Since its founding, the United States’ society and economy have been rooted in racist beliefs and systems designed to extract wealth and maintain the power of a white elite…” This pledge has been endorsed by 186 institutional investors as of February 2021.

Several other pledges that have similar mission statements are also available and gaining signatures from investors large and small.

Investor Direct Action

In addition to signing public pledges and making efforts to diversify and address racial issues internally, institutional investors are also putting their money where their mouth is. This starts by investing in firms owned and operated by people of color, as well as investing with sub-advisors and portfolio managers that have diverse teams. Doing so not only promotes racial justice but also can enhance returns. In fact, a recent research paper authored by Harvard Business School’s Josh Lerner showed that portfolios managed by more diverse firms outperformed their peers, on average. Similarly, the National Association of Investment Companies (NAIC) found that private equity funds with greater diversity outperformed in nearly 80% of vintage years.

Investing in companies with more diverse corporate boards of directors also seems to be a social strategy that yields above-average returns. One recent piece of industry research put out by the Carlyle Group finds that after controlling for industry, fund, and vintage year, companies with more diverse boards generate earnings growth that is five times faster, on average, with each diverse board member associated with a 5% increase in annualized earnings growth.

Other direct actions investors can take to promote racial justice include putting capital into real estate investments, such as REITs, that promote affordable housing or invest in under-served residential communities, making improvements and offering fair terms and rent for their tenants. At the same time, investors may seek to negatively screen out investments that could prove detrimental to the cause of racial justice, for instance in banks known for predatory lending practices or redlining, or that engage in activities that overburden communities of color such as private prisons.

Investing in Racial Justice Investments

While much of racial justice investing involves actions taken by large institutional investors, individual retail investors can also get involved. In addition to researching and investing in stocks that align with these causes, there is now a racial justice-focused exchange-traded fund (ETF): The Impact Shares NAACP Minority Empowerment ETF (NACP), which is, to date, the only financial product that explicitly addresses issues of racial inequality, doing so with the backing of one of America’s oldest and most prestigious civil rights groups, the NAACP. 

The top 10 holdings of NACP, as of February 2021, are:

  1. Apple
  2. Microsoft
  3. Alphabet (Google)
  4. Amazon
  5. Johnson & Johnson
  6. JPMorgan Chase
  7. Visa
  8. Proctor & Gamble
  9. Walt Disney
  10. Nvidia

Climate Finance

Originally published 12.14.2020

What Is Climate Finance?

The term climate finance has both broad and narrow uses. In its broad sense, it refers to an enterprise that uses financial institutions or technologies to advance the cause of environmental sustainability, such as by developing or deploying new solar panels or other renewable energy sources. In its narrow usage, climate finance refers to the transfer of capital from developed to developing nations in adherence to the recommendations laid out in international agreements such as the 2016 Paris Agreement.

How Climate Finance Works

Climate change is the long-term progression of patterns in the world’s climate. These changes are commonly related to human activities such as the use of certain nonrenewable resources like fossil fuels. Once burned, these energy sources help raise the Earth’s temperature by increasing greenhouse gases in the atmosphere. Climate finance is a way for individuals and nations to help fight climate change. In the most general sense, climate finance refers to any type of financing used to tackle climate change. Financing normally takes place on the municipal, national, or international level and comes from various sources—both public and private.

IMPORTANT Climate finance—which takes place on the municipal, national, and international levels—may come from either public or private sources.

The topic of climate finance is growing in international importance, as countries and companies become increasingly aware of the risks and opportunities associated with climate change. For instance, the United Nations Environment Programme (UNEP) reported in September 2019 that between 2010 and 2019, global investments in renewable energy technologies exceeded $2.5 trillion, roughly quadrupling the global energy capacity associated with renewable sources.1

Various financial institutions and technologies played an essential role by facilitating this shift in global energy infrastructure. Among the examples of how finance plays a role in this process include the use of:

  • Banks and other intermediaries to transfer capital overseas
  • Financial markets to price energy commodities
  • Derivative markets to hedge and exchange risks related to energy prices
  • Stock exchanges and investment vehicles to facilitate investment in renewable energy companies

Climate finance encompasses all of these activities, which are likely to accelerate even further in the coming years.

As noted above, the term also has a more narrow meaning. In this sense, it relates to the question of how developed countries should support developing ones in their transition toward energy sources and other technologies with improved environmental footprints. These discussions are frequently contentious—at times, implacable—raising a slew of morally ambiguous questions. 

Example of Climate Finance

Let’s look at an example to show how climate finance works in the real world. A common demand from developed countries, such as those in North America and Europe, is that developing nations, such as those in Asia or sub-Saharan Africa, should refrain from relying on new coal-fired power plants. On the other hand, these developing countries often contend that this demand is hypocritical since developed countries were able to achieve their current level of development in part by exploiting coal and other inexpensive fossil fuels during their own periods of industrialization

For this reason, many believe that developed countries have a moral obligation to subsidize developing countries by helping them invest in more environmentally friendly energy sources such as wind, solar, and hydroelectric power. Of course, this debate becomes increasingly difficult when one seeks to find the exact definition of a developing country. Should the United States provide subsidies to China, for example, due to the fact that its per capita income is still far below that of the United States? Many Americans are likely to consider this politically unacceptable, citing China’s rapid development in recent years.

Political discussions surrounding climate finance can also prove contentious around the question of which investments should be considered eligible for funding under the climate finance programs. For example, some would argue that child education should receive funding, on the grounds that it would reduce population growth and therefore help curb emissions. However, others may wish to restrict climate finance initiatives to projects with a more direct and near-term association with climate change, such as the installation of renewable energy sources.

An ‘ESG-First’ Approach to Portfolio Construction

Originally published 1.29.2021

  • Investor demand is rising for strategies that integrate environmental, social or governance (ESG) considerations with financial objectives.
  • Multi-asset-class portfolios can now be transformed through an ESG-first approach, with the capability of core, impact and tactical allocations.
  • Taking such an approach using MSCI solutions meaningfully improved the ESG characteristics of a hypothetical portfolio without significantly altering the risk-return profile.

The new Biden administration in the U.S. and ESG-related disclosure regulations and guidelines slated to take effect across Europe will likely increase investors’ focus on sustainability. We’ve seen already, however, that to help counter the effects of climate change or reallocate capital to companies that contribute to positive environmental, social or governance outcomes, investors have increasingly pursued strategies that unite financial objectives with ESG considerations.

How could an “ESG-first” portfolio take shape? 

Leading with ESG

We can examine an approach to integrating measurable ESG and climate considerations with financial objectives into hypothetical portfolios. This ESG-first approach can comprise three components:

1. A core allocation to a mix of equities and bonds that broadly integrates ESG and climate considerations

2. An impact allocation to a mix of assets that reflects the investor’s specific ESG preferences

3. A tactical allocation that includes decisions around other considerations, including regions, sectors, style factors, durations, credit ratings or currencies

Transforming a Portfolio Through an ESG-First Approach

Starting with a Solid Core

The foundation of the framework proposed here rests on the core allocation, which aims to deepen the integration of ESG without disturbing the risk-return trade-off. It can be incorporated early in the investment process, at the benchmark or strategic asset-allocation level, by substituting ESG equity and fixed-income benchmarks (such as the MSCI ACWI ESG Leaders Index and the Bloomberg Barclays MSCI Global Aggregate Sustainability Index) for their standard market-capitalization-weighted counterparts.1

Such a substitution improved the MSCI ESG Rating of our hypothetical portfolio to “leader” (AA) from “average” (A), raised its ESG score by 13%, cut overall carbon intensity (Scope 1 and 2 emissions) by almost 10% and increased the green-to-brown-revenues ratio by more than 50%.2 Over the back-test period, the trade-off between risk and return was almost unchanged, with the core allocation marginally reducing risk, by 30 basis points (bps), and slightly improving performance (20 bps), with low tracking error (70 bps).3

Better Sustainability with Low Tracking Error

Having an Impact

The impact component of the ESG-first hypothetical portfolio contains a mix of equity and fixed-income holdings that aim to translate investor preferences into corresponding investment solutions.

The impact allocation may include investments that target one or more of the U.N. Sustainable Development Goals (SDGs), such as gender equality or climate action, as reflected in a company’s products and operations. To help fine-tune allocations with the goal of maximizing impact, investors may look to tools such as MSCI’s SDG Alignment Tool, which assesses the alignment of about 8,500 companies around the world with each of the SDGs. The impact allocation may also look to track so-called megatrends, such as smart cities, or include green bonds issued by companies that earn a significant share of revenue from alternative energy or green buildings.

Moving to an ESG-First Portfolio

The final component of the three-part portfolio construction process aims to preserve the manager’s ability to make tactical calls across regions, sectors, style factors, durations, credit ratings or currencies as they manage portfoliowide financial exposures. The performance of many of those decisions can be represented via indexes designed to reflect a specific strategy and integrate ESG norms.

The exhibit below uses indexes as proxies to illustrate a hypothetical ESG-first portfolio that includes all three components. The core objective remains ESG improvement with a focus on climate risk. The impact allocation expresses the investor’s personal preferences such as environmental issues and gender diversity. The tactical portion leaves room for specific investment calls.

The hypothetical ESG-first portfolio is designed to enhance the investor’s objectives. As the exhibit below shows, the three steps of the portfolio allocation process, taken together, improved the MSCI ESG Rating to “leader” (AA), brought the total improvement in its ESG score to 15%, cut its carbon footprint (Scope 1 and 2 emissions) by 30% and enhanced the portfolio’s green-to-brown-revenues ratio 5.6 times, compared with the market-cap benchmark.6

Enhanced ESG and Climate Objectives

Data from Dec. 30, 2016 to April 30, 2020

The portfolio also added 1.5% of annualized active return over the back-test period, with a tracking error of 1%. While picking up a bit more volatility due to the slight equity overweight, it achieved a better risk-return trade-off overall.

The outperformance of the equity portion of the portfolio can be mostly attributed to a combination of ESG, quality and low-volatility factors (+50 bps, +30 bps and +20 bps, respectively), as well as sector exposures, such as an underweight to energy.7 It should be noted that the back-test period included the first months of the COVID-19 crisis, through April 2020.

Illuminating ESG Characteristics

To help assess how an ESG-first portfolio aligns with their preferences, investors can use tools, such as those from MSCI, to deconstruct and display the portfolio’s ESG characteristics and performance against the benchmark. That may include visualizing the impact of the portfolio for each set of environmental, social and governance factors, as well as tailoring the reporting to address unique preferences and the degree to which investments may align with the EU’s forthcoming standards for environmental sustainability.

While no one knows for sure where the new administration in the U.S., regulations in Europe or interest in ESG will lead, an ESG-first approach supports the integration of ESG and climate strategies into the investment process. It is one way to prepare for the effects of the reallocation of capital to ESG investments on the pricing of financial assets. It may also be an option for those who view the path to producing financial return as one and the same with the goal of a greener and more sustainable society.

1The indexes in this example may be used as a benchmark for performance measurement or by a portfolio manager seeking to replicate the index through investment in either funds tracking the index or the purchase and sale of individual securities.

2MSCI ESG Research rates companies on a scale from AAA (best) to CCC (worst), according to their exposure to ESG-related risks and how well they manage those risks relative to peers. Our ESG Ratings range from leader (AAA, AA) to average (A, BBB, BB) to laggard (B, CCC) and correspond to ESG Scores ranging from 10 (best) to 0 (worst). The green-to-brown-revenues ratio is the ratio of the weighted average revenue from clean-technology solutions, or “green revenue,” to the weighted average fossil-fuel revenue, or “brown revenue,” defined as the weighted average percentage revenue derived from fossil-fuel-related activities — including thermal coal mining, oil and gas extraction, thermal coal-based power generation and oil- and gas-based power generation. Please see the Further Reading section at the end of this post for more information.

3The back-test covered the period from Oct. 31, 2013, through April 30, 2020.

4In 2015, the United Nations adopted 17 UN Sustainable Development Goals in an effort to end extreme poverty, reduce inequity and protect the planet by 2030. See “Transforming our World: the 2030 Agenda for Sustainable Development.” United Nations Department of Economic and Social Affairs, Oct. 21, 2015.

5The analysis and observations in this report are limited solely to the period of the relevant historical data, back-test or simulation. Past performance — whether actual, back-tested or simulated — is no indication or guarantee of future performance.

6Exposure to carbon-intensive companies is based on Scope 1 and Scope 2 emissions. Equity and fixed-income (ex-sovereign bonds/Treasurys) in tons of CO2/USD million of sales, fixed-income sovereign/Treasurys in tons of CO2/ million USD of GDP nominal.

7For the attribution, we use MSCI’s Global Total Market Equity Model (GEM), which also includes ESG as a factor.

Sustainable investing is surging. How to decide if it’s right for you

Originally published 11.5.2020


  • The first half of 2020 reportedly saw a record $20.9 billion flow into sustainable funds.
  • Sustainable investing has grown into a complex landscape with sometimes confusing and overlapping terminology.
  • Here’s a look at the sector and whether it might work for you.

Socially responsible, or sustainable, investing — investing in ways to make the world a better place — continues to surge, driven by increasing consumer demand and the recognition that sustainable funds provide returns comparable to traditional funds in addition to lower risk.

According to Morningstar, the first half of 2020 saw a record $20.9 billion net flow into sustainable funds, almost as much as all of 2019. This continues a trend reported by the Forum for Sustainable and Responsible Investment (US SIF) showing U.S. sustainable investing assets at $17.1 trillion in 2020, an amount 42% higher than 2018. Only 27% of these assets were held on behalf of individual/retail investors.

A tidal wave of growth is poised to follow in the retail sector, as just 25% of individual U.S. investors know much about this investing approach, according to a Morgan Stanley survey.

The attractiveness of sustainable funds’ reward and risk characteristics will only grow. Another Morgan Stanley report found that, from January 2020 to June 2020, U.S.-based sustainable equity funds outperformed their traditional peers by a median of 2.8% in terms of total returns and likewise lost 3.9% less during this time of pandemic-induced volatility.

More from Impact Investing:
What to know before putting money into “do-good” investments
Climate change may pose risk to real estate investments
Energy-saving solutions help homeowners cut costs, save environment

As it has evolved, sustainable investing has grown into a complex landscape with sometimes confusing and overlapping terminology. Adjectives like “socially responsible,” “socially conscious,” “green” and “values-based” investing have coalesced into two main descriptors: sustainable investing and ESG.

Sustainability within an investment context is about meeting present needs while also considering long-term positive outcomes. ESG refers to three sets of overarching factors — environmental, social and governance.

As sustainable funds are marketed in varying ways, it’s simplest to consider them in terms of the factors (and sub-factors) on which they focus and the strategies they follow, as identified by the Forum for Sustainable and Responsible Investment.

Just what is ESG?

There is no agreed upon definition of “E,” “S” and “G,” but they tend to be in the same ballpark.

Research firm MSCI breaks down ESG factors and sub-factors this way:

  • Environmental: climate change, natural resources, pollution and waste, environmental opportunities
  • Social: human capital, product liability, stakeholder opposition, social opportunities
  • Governance: corporate governance, corporate behavior

Similarly, the Forum uses the following factors and sub-factors to screen funds:

  • Environmental: climate/clean tech, pollution/toxics, environment/other
  • Social: community development, diversity and equal employment opportunity, human rights, labor relations
  • Governance: board issues, executive pay

In sustainable investing, these factors are incorporated into the traditional investment analysis by a process referred to as ESG factor analysis.

“Over the past 30 years, sustainable investing has evolved into a big data-driven ESG factor-analysis process,” said Steve Schueth, managing director of Thrize Partners, a Boulder, Colorado-based sustainable investing consultancy, and former 20-year executive producer of The SRI Conference. “All the approaches are underpinned by this same process.

“If you cut through all the marketing stuff, you’ll find ESG inputs,” he added.

Two broad strategies

There are two broad strategies relating to sustainable investing, according to the Forum: ESG incorporation and shareholder resolutions/investor engagement. (See graphic below of the Forum’s screening matrix.)

US SIF ESG investment explainer

1. ESG incorporation: Thisincludes these five common sub-strategies:

Positive/best-in-class screening: investment in sectors, companies or projects selected for positive ESG performance relative to industry peers. This also includes avoiding companies that do not meet certain ESG performance thresholds.

Negative/exclusionary screening: the exclusion from a fund or plan of certain sectors or companies involved in activities deemed unacceptable or controversial (such as alcohol, animal mistreatment, defense/weapons, gambling, tobacco, etc.).

ESG integration: the systematic and explicit inclusion by investment managers of ESG factors into financial analysis.

Sustainability themed investing: the selection of assets specifically related to sustainability in single- or multi-themed funds.

Impact investing: targeted investments aimed at solving social or environmental problems.

Impact investing in reality means positive impact. It’s the intentionality behind the whole thing.

The term “impact” can be ambiguous, Schueth said.

“All investing has an impact, but are you paying attention [to what it is]?” he said. “Impact investing in reality means positive impact.

“It’s the intentionality behind the whole thing,” he added.

Further, impact investing is what’s happening outside of Wall Street, said Michael Kramer, managing director of Windsor, California-based Natural Investments. He cites investing methods such as private debt and equity, venture capital, community development investing, banks and credit union and loan funds with a social purpose (for example, alleviating poverty).

“It’s very solution focused, very proactive – often investing in innovations, and supporting social entrepreneurs and socially focused start-ups,” he said.

2. Shareholder resolutions and investor engagement: ESG-related shareholder resolutions have focused on issues such as corporate political activity, climate change, labor and equal employment opportunity, executive pay and human rights, according to the Forum. Engagement refers to other manners of communication with companies, such as voting proxies, talking with management or joining shareholder coalitions.

The sustainability mindset is something most investors already have on an individual basis, said Meg Voorhes, director of research for the Forum for Sustainable and Responsible Investment.

“Why do people invest?” she said. “You’re deferring immediate gratification.

“You’re thinking long-term — about your education, your children’s education, retirement — things that are 10, 20 years off,” Voorhes added. “With sustainable investing — you’re thinking about your hopes for the next generation and about — what do you want the world to look like?”


Corporate Social Responsibility (CSR)

Updated 11.17.2020

What Is Corporate Social Responsibility (CSR)?

Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable—to itself, its stakeholders, and the public. By practicing corporate social responsibility, also called corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society, including economic, social, and environmental.

To engage in CSR means that, in the ordinary course of business, a company is operating in ways that enhance society and the environment, instead of contributing negatively to them.

Understanding Corporate Social Responsibility (CSR)

Corporate social responsibility is a broad concept that can take many forms depending on the company and industry. Through CSR programs, philanthropy, and volunteer efforts, businesses can benefit society while boosting their brands.

As important as CSR is for the community, it is equally valuable for a company. CSR activities can help forge a stronger bond between employees and corporations, boost morale and help both employees and employers feel more connected with the world around them.


  • Corporate social responsibility is important to both consumers and companies.
  • Starbucks is a leader in creating corporate social responsibility programs in many aspects of its business. 
  • Corporate responsibility programs are a great way to raise morale in the workplace. 

For a company to be socially responsible, it first needs to be accountable to itself and its shareholders. Often, companies that adopt CSR programs have grown their business to the point where they can give back to society. Thus, CSR is primarily a strategy of large corporations. Also, the more visible and successful a corporation is, the more responsibility it has to set standards of ethical behavior for its peers, competition, and industry.

IMPORTANT: Small-and-mid-sized businesses also create social responsibility programs, although their initiatives are not often as well-publicized as larger corporations.

Example of Corporate Social Responsibility

Starbucks has long been known for its keen sense of corporate social responsibility and commitment to sustainability and community welfare. According to the company, Starbucks has achieved many of its CSR milestones since it opened its doors. According to its 2019 Global Social Impact Report, these milestones include reaching 99% of ethically sourced coffee, creating a global network of farmers, pioneering green building throughout its stores, contributing millions of hours of community service, and creating a groundbreaking college program for its partner/employees.1

Starbucks’ goals for 2020 and beyond include hiring 10,000 refugees, reducing the environmental impact of its cups, and engaging its employees in environmental leadership.1 Today there are many socially responsible companies whose brands are known for their CSR programs, such as Ben & Jerry’s ice cream and Everlane, a clothing retailer.2 3

Special Considerations

In 2010, the International Organization for Standardization (ISO) released a set of voluntary standards meant to help companies implement corporate social responsibility. Unlike other ISO standards, ISO 26000 provides guidance rather than requirements because the nature of CSR is more qualitative than quantitative, and its standards cannot be certified.4

Instead, ISO 26000 clarifies what social responsibility is and helps organizations translate CSR principles into practical actions. The standard is aimed at all types of organizations, regardless of their activity, size, or location. And, because many key stakeholders from around the world contributed to developing ISO 26000, this standard represents an international consensus.5

Frequently Asked Questions

What is corporate social responsibility (CSR)?

The term corporate social responsibility (CSR) refers to practices and policies undertaken by corporations that are intended to have a positive influence on the world. The key idea behind CSR is for corporations to pursue other pro-social objectives, in addition to maximizing profits. Examples of common CSR objectives include minimizing environmental externalities, promoting volunteerism among company employees, and donating to charity.

Why should a company implement CSR?

Many companies view CSR as an integral part of their brand image, believing that customers will be more likely to do business with brands that they perceive to be more ethical. In this sense, CSR activities can be an important component of corporate public relations. At the same time, some company founders are also motivated to engage in CSR due to their personal convictions.

What is the impact of CSR?

The movement toward CSR has had an impact in several domains. For example, many companies have taken steps to improve the environmental sustainability of their operations, through measures such as installing renewable energy sources or purchasing carbon offsets. In managing supply chains, efforts have also been taken to eliminate reliance on unethical labor practices, such as child labor and slavery. Although CSR programs have generally been most common among large corporations, small businesses also participate in CSR through smaller-scale programs such as donating to local charities and sponsoring local events.

1 Starbucks. “Starbucks 2019: Global Social Impact Report,” pages 5-12. Accessed July 23, 2020.

2 Ben & Jerry’s. “Socially Responsible Causes Ben & Jerry’s Has Advocated for.” Accessed July 23,2020

3 Everlane. “More Sustainable Every Day.” Accessed July 23, 2020.

4 International Organization for Standardization. “ISO 26000: Social Responsibility

5 International Organization for Standardization. “ISO 26000: Social Responsibility” Accessed July 23, 2020.

Reviewed by Gordon Scott

Four reasons why investing in clean energy is essential for rebuilding the economy

Originally published 8.24.2020

As federal lawmakers continue to debate different approaches for jump-starting our economy in the wake of the COVID-19 pandemic, they must also consider how the investments we make today can be designed to avoid the worst environmental, social and economic impacts of climate change in the long run. Amid much disagreement, one promising area of investment continues to stand out: clean energy.

A big investment in clean energy, clean transportation, energy efficiency deployment and R&D can generate substantial returns on job growth and emissions reductions. Boosting these areas now can be a critical step toward building a 100% clean economy over the next 30 years, a science-based goal that calls for allowing no more climate pollution produced than can be removed from the atmosphere across all sectors of the economy.

Here are four reasons to include major investments in clean energy in our recovery plans:

1. Clean energy jobs have been increasing rapidly…

First and foremost, federal policymakers should recognize that clean energy jobs were already growing rapidly before COVID-19. From 2015-2019, the clean energy sector was adding jobs 70% faster than the overall US economy. Before the pandemic, 3.4 million Americans across all 50 states and the District of Columbia worked in clean energy occupations — renewable energy, energy efficiency, grid modernization, clean vehicles and fuels. That means there are more people with clean energy jobs than work in real estate, banking, or agriculture in the U.S. and three times the number that work in fossil fuels.

But like many sectors, the clean energy industry has been hard hit by the pandemic, with more than 500,000 clean energy workers still unemployed, about 15% of the pre-pandemic clean energy workforce. Immediate support from federal lawmakers is needed, and given the upward trajectory before COVID-19, it could help get the industry back on track.

2. … and clean energy jobs have much more room to grow

Multiple analyses reveal that stimulus support for key elements of a clean economy is a smart way to generate good-paying jobs that can help lift the US out of the recession and sustain long term growth. One study found that clean energy investments create three times more jobs than an equivalent investment in fossil fuels. According to a new report from E2, federal clean energy stimulus investments totaling $99.2 billion — with targeted and strategic investments in renewable energy, energy efficiency and grid modernization — could generate 860,300 full time direct, indirect and induced jobs that would last at least five years (a total of 4.3 million job-years). This level of stimulus and the resulting jobs would add $330 billion in economic activity, more than triple the amount of investment. And if anything, this may be an understatement: the Department of Energy conservatively estimated, based on third-party evaluations of six key clean energy R&D portfolios, that a taxpayer investment of only $12 billion yielded net economic benefits of more than $388 billion, nearly 33 times the initial investment.

Investments in energy efficiency have an additional benefit: Besides creating jobs, these investments create energy savings that can pay back the initial investment and more. A recent analysis from the American Council for an Energy Efficient Economy found that several proposed energy efficiency investments could result in 165,000 jobs per year for four years through 2023 over the lifetime of the investments and savings. Over time, these investments would result in more than $120 billion in energy bill savings while reducing more than 900 million metric tons of CO2 emissions.

Moving toward a cleaner, more efficient transportation sector can also lead to significant job creation. Tax incentives for electric vehicles, which includes expanding tax credits for electric passenger vehicles and charging stations and creating a new credit for electric trucks, could generate 10,000 jobs per year for the first four years. Furthermore, key labor stakeholders, including the BlueGreen Alliance and UAW, believe that the transition to EVs can represent a big opportunity for domestic manufacturers, with minimal job disruption, if the appropriate policies are in place to support domestic workers.

All in all, big investments now could lead to even bigger returns.

3. Enormous environmental and health benefits

The economic rationale for investing in clean energy is clear, but the climate and health benefits make it a slam dunk. A new report from the Environmental Defense Fund and Datu found that the number of annual severe weather disasters, including hurricanes, floods, wildfires and other events has increased four-fold since 1980, costing US taxpayers more than $1.75 trillion. The frequency, severity, damage — and costs — from these severe weather events will only worsen without strong action to curb emissions. And we know from past experience, like with Hurricane Harvey in 2017 or with searing heat waves over the last few months, these impacts will not fall on Americans evenly — the most vulnerable, such as communities of color and low-income households living in flood-prone areas, will bear the brunt of inaction.

The health benefits of a clean economy cannot be overstated either, and policies must be designed to address systemic inequities that put people of color at greater risk for the impacts of pollution. The transportation sector, including cars, buses and trucks, as well as the energy sector, including coal-fired power plants and refineries, comprise some of the largest sources of harmful air pollution in the US, which increases rates of asthma, heart disease and other health issues. All told, estimates reveal that air pollution causes between 90,000 to 360,000 deaths a year in the U.S.

But this burden is not borne equally. Research from the Rhodium Group estimates that the average Black American is exposed to 46% more diesel particulate matter emissions and 22% more air toxic respiratory hazards than the average white American. For Latino Americans, that exposure is 41% and 17% higher respectively. And studies continue to highlight how indigenous communities experience an unjust burden of environmental pollution, including from agricultural, mining, waste dumping, and more. EDF found that oil and gas methane emissions on Navajo Nation were 65% higher than the national average.

Air pollution exacerbates the heart and lung conditions that make COVID-19 more deadly, and it’s no coincidence that communities bearing the brunt of this pollution — Black, Latino, and Indigenous communities — are the same ones suffering the most from the pandemic today. A shift toward clean energy can help lift these heavy burdens from pollution and not only improve these communities’ health outcomes, but also help build a stronger, healthier and more equitable workforce.

4. Clean energy is popular on both sides of the aisle

Many federal policymakers and candidates are already taking notice of the preponderance of evidence justifying clean energy investments — and they are responding with serious and ambitious proposals. In July, House lawmakers passed the $1.5 trillion Moving Forward Act, an infrastructure package that includes $70 billion in clean energy investments as well as clean energy tax credit extenders and provisions to curb emissions. As discussed, this level of investment could spur significant job growth, while getting the US on a path to a 100% clean economy. And more than ever before, candidates are running on clean energy as a key pillar of their economic plans and calling for dramatic cuts in pollution across major emitting sectors, like transportation, buildings and industry.

Extending clean energy tax incentives and investments has long been a priority for many Congressional Democrats, but recently, a group of Senate Republicans also voiced support for policies that will bolster jobs and innovation across the clean energy economy. At the same time, polling continues to reflect widespread bipartisan support for clean energy: According to a June 2020 Morning Consult poll, 66% of voters believe clean energy investments will strengthen the US economy and benefit workers.

Support for clean energy is ultimately only one piece of a complete policy package that can rebuild our economy in a way that tackles critical climate, health and equity challenges. Policymakers must also look at ways to bolster adaptation, resilience and innovation — and ultimately, enact a comprehensive policy solution that limits climate pollution across the economy.

In short, while there is much work to be done to get the US on the path toward recovery and a stronger, 100% clean economy, investments in clean energy are a vital step.

Impact Investing Calls for a Head, Heart and Math Approach

Originally published 10.05.2020

True impact investments differ from typical socially responsible funds.

Impact investing—in which social and environmental performance is considered on par with financial performance–has become an increasingly popular investment approach in the last few years.

According to a Global Impact Investing Network report, the impact-investing sector has doubled in size over the past couple years. Moreover, impact investors say their impact investing allocations will continue to grow.

Younger generations especially are drawn to impact investing because they see no reason to separate philanthropy from investing. That said, it’s not just young investors who have spiked impact investing’s growth. The number of impact investors is rising across all demographic categories. Of note, 72 percent of the U.S. population expressed interest in sustainable investing.

However, due to the large number of socially responsible investment offerings in the marketplace, people looking to positively impact society with their investments may not know where to start when vetting potential impact investments.

Shifting the Focus

While it’s easy to choose the bigger, well-known companies pursuing sustainable initiatives, it’s worth the time (and investment) to find small, growing, for-profit impact companies that are effectively addressing social and environmental problems in the world (i.e., the climate crisis, hazardous waste, poverty, etc.).

When reviewing these companies, some criteria to keep in mind include:

  • Social and Environmental Focus—Companies striving for measurable, positive impact toward a social or environmental problem
  • Managerial Health—Companies with a strong management team and sound board leadership
  • Profitability—Positive profit margins or viable potential for profit within a reasonable period of time
  • Transparency & Accountability—Measurable impact shown through finance, policy and information sharing

When it comes to effective impact investing, you’ll want to look beyond traditional investment analysis and extend into data-driven evaluation and measurement of positive indicators of social or environmental impact. As such, I’ve developed a formula to help us at CoPeace develop quantifiable social and environmental targets, elements of which can be used by individual investors to identify impact investments that will make a difference and guarantee competitive financial returns.

Head + Heart + Math Model

Called the “Head + Heart + Math” model, this three-prong process helps effectively identify companies with sustainable business models that are making a measurable impact. In short, this model consists of the following:

Head (Research): This includes exploring the company’s website and other media platforms, related articles, product or service concept, general business model, customer relations and other operational concepts.

Heart (Impact): Look into the company’s executives to get a better understanding of their interests and values. This in turn will give you insight into their relatability and how they run the company. This step also involves looking deeper into the company’s demonstratable social or environmental impact, and if their goal/mission speaks to you.

Math (Analysis): This part is a bit harder without the help of a financial professional, but you’ll want to look into any public financial documents, such as financial projections and budgets to assess the company’s financial viability, including determining degree of profitability and identifying risks to measure the company’s current and future success.

By following this method you’ll find yourself making true impact investments, as opposed to investments in “socially responsible” mutual funds and ETFs. “Socially responsible” or “green” mutual funds and exchange-traded funds (ETFs) invest in selected companies doing some good things, but still negatively impacting society in other ways.

Achieving True Impact

The main goal of impact investing is to help grow true impact-driven companies whose sole mission is to positively impact the world by effectively addressing social and environmental problems while simultaneously generating profits.

Ensuring your investments will truly make a difference while building wealth takes a little time and research, but it’s worth it in the end. Whether you find these companies individually or through an impact holding company, now more than ever, it’s critical that our intended impact investments are actually helping to change the world for the better, and following the Head + Heart + Math formula helps us do just that.

Craig Jonas, CEO of CoPeace, is a lifelong entrepreneur with success across business, academic, and athletic industries. He has over 30 years of experience in management with a passion for team-building and drawing individuals with big ideas together.