If you’re interested in aligning your investments with your values, you’re going to need good information. One of sustainable investing’s finest features is that it examines more information than just quarterly financials; information that helps you identify the investments that are right for you. But strangely, it might be hard to come by.
In my experience, one of the biggest impediments for people to get started with sustainable investing is information, or the lack thereof. Investment firms that offer sustainable, ESG or values-focused funds can be wildly inconsistent in what they report to their investors.
But there are firms that do a good job – not just of reporting information, but of sustaining an informative conversation with clients. What does that kind of quality communication look like?
Quiet … too quiet
The investment industry is famous for holding their cards close to their vest, not wanting to reveal too much about their thinking. Index funds provide even less analysis, typically following an index that is put together by an algorithm. Your average fantasy football player has access to more information and analysis than a typical investor does.
And that’s a problem. What investors want from sustainability investments varies, and investors need communication that helps them identify the strategies that are a fit. Otherwise, investors can (and often do) find themselves in funds that don’t suit them at all, which is a great recipe for accusations of greenwashing.
Everyday investors can’t just pick up the phone and get detailed answers to their questions, the way big-money impact investors can. They have to rely on the communications materials created by fund families to make their decisions. In that regard, few investment firms do more or better communication work than Domini Impact Investments.
Domini – a standout example
To be clear, there are several investment firms that do a good job of explaining their sustainability approach. But few firms take the role of communication quite as seriously as Domini does.
Domini was cofounded by Amy Domini, who is a long-time advocate for sustainable forms of investing. The firm has maintained a core company set of Impact Investing Standards for the last 20 years. It provides extensive reporting on how it tries to influence behaviors of the companies it invests in, and each quarter it provides clear examples of the impacts of its investments. And all of it is written in plain English.
Carole Laible, CEO of Domini Impact Investments, says that Domini is very intentional about their communications approach. “Our job is to continually tell our investors how their dollars have been put to work, both with data and stories,” she explains.
“A lot of our investors start off being focused on how they don’t want to make money,” she continues. “But once they see our standards in action, they start to understand all of the positive ways in which their money is being put to work. Our clients know that every dollar they invest is having an impact – that transparency really matters.”
Compare that thinking to a more typical ESG fund – for example, the Vanguard ESG U.S. Stock ETF. ESGV ESGV promises to track the FTSE US All Cap Choice Index, while excluding stocks of “certain” industries (adult entertainment, alcohol, tobacco, cannabis, gambling, weapons and guns, nuclear power, and coal, oil, or gas companies). It also screens for “certain” environmental, social, and corporate governance criteria, such as companies that do not meet “certain” labor, human rights, environmental, anti-corruption standards or diversity criteria.
What, might you ask, are the “certain” criteria they use? Vanguard won’t tell you, but they are willing to point you to a 27-page methodology report for the FTSE Global Choice Index Series on the FTSE Group’s website. You’ll have to look there, if you dare, because the fund’s regular reporting makes no mention of any issues, decisions or performance impacts related to its ESG criteria.
Prioritizing good communication
Good communication isn’t the only reason to choose a specific sustainable investment – it’s perfectly reasonable for someone to prefer a low-cost formulaic approach like ESGV’s over the more costly, research-intensive approach preferred by Domini. But not enough sustainable fund and ETF providers offer adequate information, and it’s hard to have an Aha Moment without it.
When evaluating sustainable investments, my colleagues and I at Till Investors start by looking at one very simple set of questions:
- Do they say what they do? and
- Do they do what they say?
These questions get you a lot further than you might think in narrowing down your options.
Sustainable investing is built on a belief – one well supported by data – that companies with a strong focus on sustainability are more resilient and more flexible, and therefore better able to provide long-term gains. But it’s also an exploration or personal priorities and a desire for impact.
It is reasonable for any investor to want to see their values reflected in their portfolios. But that can’t happen without the kind of content that Domini provides on a regular basis.
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