Money (Truly) Matters: Sustainable Investing 101

This past May, Climate Witness Project hosted a Sustainable Investments webinar featuring Kurt Holzhueter, an advisor with ClearView Investments. For those who are serious about mitigating climate change, a powerful advocacy tool is financial investments. Taking money OUT of fossil fuels and instead channeling those funds to companies with a commitment to sustainability is an important step. But how to go about making that change? 

To answer this question, we asked Holzueter to provide an overview of sustainable investing, and then share the pathways available to churches, congregations and individuals should they decide to take the next step.

He started off the evening with an encouragement to those on the fence: “Directing your money is arguably the quickest and most impactful way to address the issue of greenhouse gas emissions.” He then went on to point out that while there are other important areas of change — like getting laws passed or making sure your recycling is being done correctly or trying to budget for an electric vehicle — those areas of activism often move slowly in what they accomplish. Investing though? “Where you choose to put your money can have a quicker impact on changing companies’ behaviors.”

The goal is to preserve the environment and to leave a financial and environmental legacy

At the heart of sustainable investing, at least for a Christian, is the duty to be a faithful steward of God’s creation. The goal is to preserve the environment and to leave a financial and environmental legacy for future generations. One of the best avenues for this type of investing are ESG funds.

What is ESG? The initials stand for “Environmental, Social, Governance.” According to the SEC, an investment fund can be labeled ESG when it selects companies “based on their stated commitment to one or more ESG factors —for example, companies with policies aimed at minimizing their negative impact on the environment or companies that focus on governance principles and transparency.” 

It’s important to note, Holzueter emphasized that ESG is a broader term that includes the environment, but is not JUST about the environment. In choosing an ESG fund, it’s important to note what their focus is. When they prioritize environmental issues, this often covers waste and pollution, resource depletion, greenhouse gas emissions, deforestation, and climate change. 

This growth comes, in part, because of the success of the funds themselves.

In the short time that sustainable investing has been available, there has been tremendous growth.. While initially these types of funds were only a very small part of the market, in recent years, 36% of global assets have been invested using the ESG criteria. This growth comes, in part, because of the success of the funds themselves. “There are thousands of studies now that show that ESG investments are at the very least neutral, but are also often outperforming traditional portfolios.” This strong performance is driven in part because frequently companies that have strong environmental ratings are also well managed companies. They’re typically successful and much more likely to return a profit on your investment. 

ESG investing has become a force for good because it has pulled back the veil on corporate environmental practices. As these practices are more thoroughly scrutinized, individuals and investment groups are more aware of what they are actually investing in. Along with that, employees and shareholders have become more aware of how their company is behaving. And all that leads to companies behaving more responsibly — they want employees and investors to be happy.  

What are the pitfalls to ESG investing? Holzhuer outlined several:

• Confusing and/or misleading terminology. There are thousands of funds that advertise they are sustainable. It’s up to you to take time to fully explore what is meant by the terms being used to describe an investment opportunity. 
• Lack of diversification. He cautions that it is important to not put all your proverbial eggs in one basket, or in one fund. Just like with traditional investments, make sure you diversify! 
• Unclear investment philosophy. A fund that tries to address too much won’t always work as well as a fund that has a clear plan and focus. He pointed out that it’s easier to get  data and to confirm that there is an impact from your investments when there are clear goals for a fund’s investments.

How do you get started in ESG investing? Hozlhuer said that actually opening the investment fund is the easy part, taking not much more than 20 minutes. The key is locating good funds and finding an advisor who will help you. To that end, he listed several questions to ask a potential or current investment advisor:

• Do you offer ESG/sustainable portfolios?
• What is your firm’s ESG investment philosophy? 
• Do you use funds versus portfolios?
• How do you invest client funds with these portfolios? Do you use mutual funds, exchange-traded funds, individual stocks & bonds?
• How do you measure the results of a fund, both financial returns and environmental impact?

As investment funds screen companies for their environmental impact, capital shifts from those businesses with the poorest sustainability scores to companies with the best scores. This incentivizes companies to improve their environmental ratings so they can qualify for more capital, which also means that long term, there will be significant reductions in carbon emissions. As Holzhuer shared, “My hope is that the question you’ll ask is not why should I be doing this but why wouldn’t I be doing this.” 

Did you miss the Sustainable Investments webinar? No worries! We recorded it and you can watch the entire event, including the Q & A at the end on YouTube.