With seventy-five percent of investors reporting an interest in sustainable investing, expertise in sustainable strategies can differentiate and add value to an adviser’s practice by allowing the adviser to better serve clients who wish to see their investments reflect their values or faith. “Sustainable” investing covers a broad spectrum of investment opportunities – from consideration of environmental, social, and governance risks during fundamental analysis, to highly focused impact investing strategies. This breadth allows an adviser ample room to shift his or her advisory relationship away from a price-based, commoditization of products and services toward a more customized, client-focused model.
The Sustainability Smile
The Sustainability Smile is a visual tool designed to help advisers discuss sustainable investing with existing and prospective clients. It breaks the broad label of “sustainability” into five strategies and places them along a continuum, providing a framework for client engagements, potential investment strategies, and their respective product offerings. Please note that the positions of the differing strategies and general shape of the smile do not imply any specific investment outcome or predict any particular rate of return.
The Full Spectrum of Sustainable Investing
- Traditional Finance describes most traditional, mainstream investing practices where values-based investment strategies are not incorporated.
- Integrated Finance can be viewed as an evolutionary development that incorporates traditional finance while taking into consideration material, non-financial environmental, social and governance (ESG) factors, and looks at how these factors may improve or impair investment performance. Examples include taking into consideration a company’s environmental practices or supply chain management processes.
- Ethical & Advocacy investing seeks to prioritize religious and broader social considerations in a portfolio’s construction. For example,
- Ethical investors, including faith-based investors, tend to exclude the ownership of certain industries that are not consistent with their beliefs – typically “sin stocks.”
- Advocacy investing aligns the interests of other investors – typically equity investors able to affect change through shareholder resolutions – to encourage companies to improve their business practices.
- Impact & Thematic investing describes investments aiming to generate competitive, risk-adjusted returns based on the underlying characteristics of their asset class while demonstrating specific, measurable results to targeted causes or social and economic trends.
- Impact investing typically seeks to prioritize a broad range of investment activities that focus on measurable agendas – including pro-social programs or conservation-themed projects. For example, an impact investment may address global poverty through micro-finance notes.
- Thematic investing focuses on a specific market, such as renewable energy, or demographic trends as a means of allocating capital toward solution-oriented investments.
- Philanthropic activities focus entirely on maximizing the value sets of the benefactor with little, if any, regard for investment returns.
Familiarizing yourself with the spectrum of sustainable investing strategies will help you prepare for discussions with clients about the values and impact they hope to see in their portfolios – discussions which, in turn, give an adviser the opportunity to connect beyond financial targets and asset allocation. Having the knowledge to accommodate your clients’ values-driven goals will help build your practice in a meaningful way.
 TIAA Global Asset Management, Second Annual Practice Management Study, 2016.
This report is intended only for the information of the reader and is not to be used for or considered as an offer or the solicitation of an offer to sell or buy any securities or other financial instruments of any kind, including without limitation, any mutual fund or other product offered, sponsored, created, or managed by Saturna Capital Corporation or its subsidiaries or affiliates (“Saturna”).
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