As demand for sustainable assets grows, it may be difficult for some consumers to decide what to add to their portfolios.
In a recent statement, Gary Gensler, chairman of the Securities and Exchange Commission, focused on environmental, social and management investments known as ECG. His team will study climate և workplace standards to find out how resources are marketed.
Investors added $ 51.1 billion in net assets to ECG assets in 2020, setting a record for the fifth year in a row, according to Morningstar.
“I think marketing is really hard,” says Phuong Luong, a certified financial planner and chief financial planner at Saltbox Financial in Newburyport, Massachusetts.
“There are no clear definitions of value-based assets, even within the industry, which can confuse investors,” he said.
Morningstar uses the term sustainable investment as a umbrella for approaches that use ECG criteria throughout the investment process. However, experts note that there are significant differences in space.
Socially responsible investments or SRIs are started by removing certain industries or industries from portfolios, such as tobacco or weapons, to align with investor values or religious beliefs. “There is also a component of involving shareholders,” Lung said.
A newer approach, the ECG, is also a value-based investment. However, the funds may be more profit-oriented with broader criteria for portfolio assets. These funds may or may not be involved in protecting the interests of shareholders.
In response to less stringent ECG standards, impact investments focus on the direct, specific effects of the assets themselves, says Rachel Robashiotti, CEO and CEO of Adasina Social Capital in San Francisco.
“It’s not just about what you said,” Robashioti said. “Criteria relate to what you do.”
Those interested in value-based investments may struggle to measure the impact of their portfolio, as there is no industry standard. While the company’s commitment to tackling climate change may be easier to assess, other issues may be more difficult.
“The most important thing for me is to look at who decided that figure,” said Robashioti. Employees with the consultant can ask questions about the measurements and impacts of their resources.
For example, there is a difference between a fund manager in determining which is more important than implementing guidelines from affected communities.
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One of the biggest challenges with value-based auditing is that there may be limited public information, Lung said.
For example, you can see “social” or “green” names, which means that the fund manager takes these issues into account. But investors may not have access to the criteria or data used to make decisions, he said.
“Traditional ECG data is usually property, that is, behind the payment wall,” he said. However, there may be other ways for investors to access data.
As You Sow is a non-profit organization that measures environmental and social corporate responsibility by protecting the interests of shareholders. The organization uses open source, publicly available data from non-profit activists on the ground, Lung said.
“I see it as a starting point for the consulting community,” he added.
Weow Sow’s Invest Your Values tools allow consumers to see which companies are part of their assets – to determine if businesses are in line with their values, such as climate issues, gender equality, guns, tobacco, and more.
Those motivated by racial justice can also study Adasina’s free influence data.
“What you are looking for is backwardness, action,” Robashioti said.