Socially Responsible Investing Is Just A Feel Good Fad

 Like all these blogs the heading is a myth . . .for a number of reasons.

First, the largest asset management firm in the world, with $8.67 trillion on the books, is going all in with ESG investing.  BlackRock's CEO Larry Fink recently wrote a letter to CEOs predicting a "tectonic shift" in the pricing of climate risk into the value of securities.
"From January through November 2020, investors in mutual funds and ETFs invested $288 billion globally in sustainable assets, a 96% increase over the whole of 2019. . . . We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity."

 But just because Larry Fink is doing it and BlackRock is saying it still doesn't mean ESG isn't a fad.  But there are other trends that do.

The Dept of labor released a new reg 10/202 that intends to limit not only ESG investing in retirement plans but even the mention of it in plan documents!  It also requires plan fiduciaries to choose investments for their participants based solely on financial performance.  Which is insane.  Private prisons are very profitable while also being a scourge on this country.  Fracking for gas is a hugely profitable enterprise with massive externalized costs, from air pollution to sullying groundwater with as yet unknown chemical cocktails.  Both are enjoying short term profitability.  Until their hazards and damage get priced in.  I wonder which industries pushed for that regulation.

So how do you tell who is who?  Isn't greenwashing rampant?  Yes, it is.  But not for long.  Several organizations are growing in power and influence, based on science and increased computing power.

• TCFD- the Task Force on Climate Related Financial Disclosures. The TCFD recommendations on climate-related financial disclosures are widely adoptable and applicable to organizations across sectors and jurisdictions. They are designed to solicit decision-useful, forward-looking information that can be included in mainstream financial filings.
  The recommendations are structured around four thematic areas that represent core elements of how organizations operate: governance, strategy, risk management, and metrics & targets.
•  SASB- Sustainability Accounting Standards Board.  SASB Standards enable businesses around the world to identify, manage and communicate financially-material sustainability information to their investors.
•  CDP- Carbon Disclosure Project, helping persuade companies throughout the world to measure, manage, disclose and ultimately reduce their greenhouse gas emissions. No other organization is gathering this type of corporate climate change data and providing it to the marketplace.
• WDI- The Workforce Disclosure Initiative (WDI) aims to improve corporate transparency and accountability on workforce issues, provide companies and investors with comprehensive and comparable data and help increase the provision of good jobs worldwide.
• FASB- Even the old stodgy Financial Accounting Standards Board informally embraces sustainability reporting.
• Morningstar Sustainalytics - As Europe pulls ahead of us, perhaps multinational corporations will demand the same attention to ESG factors not only in their own organization but in their competitors' as well.  The leveling of the playing field is accelerating.
  

I'm confident these forces will cause the DOL to reverse its corporate-pressured stance on ESG.  A true fiduciary considers all things that can positively and negatively affect its clients.  ESG investing, and consumption, are the future.

Your Constructive Comments are Welcome!

Financial Advisers Keep Their Clients From Procrastinating

Well, all know this isn't true.

But it isn't your fault.  This last year Gary Duell was the procrastinator.  None of the smartest people in the room (not including yours truly) could agree on what was going to happen and what to do about it.

 

Now that a major source of craziness will largely be out of the picture, I'm more comfortable with recommendations for this year:

 

1. Focus on Goals and Cash Flow-  block out the massive media intrusions into your lizard brain, the eat, lust, fight, flight instincts.  Focus on your goals and the plans in place- or that we're working on -to achieve them.  Review your budgets and determine which expenses are in your control and which don't contribute to your goals.  Then eliminate them.
2. Manage Risk- note that I don't say avoid risk, commonly defined as volatility.  As I say repeatedly in my classes, when you're accumulating savings volatility is your friend due to dollar cost averaging.  When you're spending, or on the cusp of spending, your retirement funds then volatility is your enemy.  Manage where and to what degree you allow volatility in your portfolio.  This usually consists of either algorithm-based risk managed ETF and/or third party backed guarantees.
3. Remember Taxes!  Taxes, not healthcare, will be your largest retirement expenditure (on average).  Do you have a plan for future [higher] taxation?
   
4. Be a perpetual student.  Recent studies have shown investors procrastinate 5-10 years before implementing our advice.  That hasn't been my experience.  But I get chagrined if my clients wait 5-10 months!  Especially now.  So never stop listening and learning.
   
5. Seek good returns but follow evidence and ethics.  As data becomes easier and easier to collect and analyze, the bad actors in our economy will be taken out of the game.  It's inevitable.  I am really encouraged by the surge in ESG, SR & Impact investing.  Most of us know without being told that lying, cheating and stealing never work out well in the end.  Companies that foist their costs onto the environment or other people will either evolve or die.  Don't invest in them.
   
6. Take care of your physical, mental and social health.  Without a mind and body it's tough to enjoy anything.  Keeping connected to others, to nature and things outside yourself, your odds are improved!
   

Your Constructive Comments are Welcome!

ESG Funds Are Having a Moment - What It Means for the Modern Investor

CNBC recently published an article articulating the rise of investing in companies that rank highly on environmental, social and and governance (ESG) factors during the COVID-19 outbreak.

Here is the link to the article.

Interestingly enough, these funds were already experiencing big growth before the COVID-19 outbreak, with assets having doubled over the last two years.

In the video below, I articulate my thoughts on this rising trend.

ESG index funds hit $250 billion as US investor role in boom grows — Watch Video

Your Constructive Comments are Welcome!