Values Based Investing: ESG and Moral Based Investments
There has been an increased interest in “Feel Good” investing over the last several years. The main goal of investing has always been to make money over the long-term but many of our clients also want to feel good about the things that they invest in. Two separate approaches have emerged in our client’s approaches to what types of companies that they want to invest in.
The first is ESG investing which is based on companies that are evaluated based on their performance in (E)nvironmental sustainability, (S)ocial responsibility, and corporate (G)overnance. The CFA Institute (CFA Institute, 2023) has a concise summary of how each of those categories are defined:
- Environmental – Conservation of the Natural World
- Some examples could be climate change or air and water pollution
- Social – Consideration of People and Relationships
- Some examples could be human rights or diversity
- Governance – Standards for Running a Company
- Some examples could be lobbying or executive compensation
The second is Values-Based investing which is purchasing stock in companies that align with your personal and moral values. Eventide Investments uses an approach called Avoid, Embrace, and Engage when they screen stocks to invest in for their mutual fund investors. (Introduction to Values-Based Investing, 2020)
- Avoid – Choose not to own companies that do not align with your values
- Embrace – Seek to own companies that align with your values
- Engage – Engage with companies to advocate for positive change
Examples of screens that Eventide uses to eliminate companies from being invested in could be if the company produces or generates revenues from abortifacients, pornography, or slave labor.
There may be considerable overlap from these approaches and we can help you navigate these decisions if either of these are important to you.
References:
CFA Institute. (2023). ESG Investing and Analysis. www.cfainstitute.org. https://www.cfainstitute.org/en/rpc-overview/esg-investing
Introduction to Values-Based Investing. (2020, December 2). Eventide. https://www.eventideinvestments.com/resources/introduction-to-values-based-investing/
