Envision Wealth Planning uses several sources to screen companies for sustainable investing: YourStake, and Morningstar Sustainability Ratings and Ethic. These investment data software require a paid subscription.
We do this to help overcome a problem known as greenwashing. An investment company may simply add a descriptor, such as Green S & P 500, indicating it has been screened. These titles are not regulated and under further examination, it may not appear to have been screened at all.
Jon Hale, Head of Morningstar’s Sustainability Research, has found that some companies with no descriptor may be more values-based than others. This may be due in part to the fact that their process of screening companies for inclusion in their fund includes screening out companies with practices that may be detrimental to their shareholders.
We believe that having multiple sources of research, in addition to engaging with our investment providers, is the wise approach to getting it right for our clients. YourStake allows us to compare portfolios according to your values, Morning Star allows us to view funds according to their ESG risk, and Ethic is a curated software for those who want to specify their investments down the companies.
YourStake Personal Values Screening
YourStake has been ranked #1 again for SRI/ESG Portfolio Analysis Services in the 2022 T3/Inside Information Advisor Software Survey. [SRI/ESG stands for socially responsible investing/environmental social and governance.] YourStake helps us understand our client/prospect values by utilizing a Behavioral Values Questionnaire. This is the first step to see if our sustainable investing approach fits our client’s needs.
Over time, we found that many of our clients are some combination of Women Empowerer, Planet Protector, and Racial Equity Advocates. Therefore, we automatically incorporate these values in our Envision Justice Series™ Portfolios investment selection.
For further personalization, YourStake’s platform provides transparent and objective raw data from over 200 sources. Their questionnaire, paired with tangible, personalized, impact outcomes, helps clients invest in portfolios that better align with their values and allows us to explain impact reports that highlight the outcomes achieved by ESG investments. The following shows a sampling of their reports.
Morningstar Sustainability Ratings
The Morningstar Sustainability Rating allows us to see how approximately 20,000 mutual funds and exchange-traded funds (ETFs) look under Morningstar’s sustainable investing lens.
The ratings measure the degree to which a company’s economic value (enterprise value) is at risk of being flagged by environmental, social, and corporate governance factors or, more technically speaking, the magnitude of a company’s unmanaged ESG (environmental, social, and governance) risks.
The rating was created to provide investors with a signal that reflects (to what degree) their investments (single assets or portfolios) are exposed to ESG risks that are not sufficiently managed by companies.
For each fund eligible for a Morningstar Sustainability Rating, the rating is expressed as 1 to 5 “globes,” whereby a higher number of globes indicates the portfolio has lower ESG Risk. Notably, the number of globes a fund receives is determined relative to other funds in the same Morningstar Global Category.
This means a fund could have more ESG risk than another fund, yet still receive a better rating if those funds are in different global categories, with their unique qualification of what is a relatively low or relatively high amount of ESG risk.
To simplify, companies are assessed a Globe rating from 1 to 5, with 5 meaning the highest. This chart shows that a mutual fund that falls just short of the top 10%, say 11%, receives a 4 Globe rating, but so does the one that scores at 32%.
Ethic Screening and Rating
To offer clients custom, custom ESG investing, we partnered with Ethic. They are a registered investment adviser that uses direct indexing to allow clients to drill down to their values. Ethic is unique in its approach to values-integrated portfolio investing. For example, let’s examine their Racial Justice Pillar, whose focus is promoting a racially equitable society. They divest from companies with poor anti-discrimination policies, substantial revenues from weapons or tobacco, or core business activities with disproportionately negative impacts on communities of color.
Their implementation drills down further including such issues as:
- Workplace Diversity
- Human Rights and Community
- Working Conditions
- Exploitative Products
- Product Quality and Safety
At this time, Ethic only provides stock exposure. That said, rather than use our mutual funds as your ingredients in your chosen Envision Justice Series™ Portfolio, we would substitute Ethic’s. We would use our bond investment to create that risk-adjusted, return-enhanced portfolio. Ethic requires a minimum $250,000 investment.
If you’re able to invest $500,000 or more in the stock portion of your portfolio, we can look at more personalized customization. Ethic’s 19 Sustainability Pillars offer a wide set of values to choose from.
Once we understand your values, we use data to overlay them onto your portfolio. The data includes more information about how companies operate and determine which companies fit your values and which don’t. This is also a powerful risk-mitigation strategy.
Are you ready to set up a meeting to learn more? Book a Discovery meeting.
How well aligned to your values is your portfolio?
See if you qualify for our complimentary values-based portfolio analysis here.