Socially Responsible Investing

Socially Responsible Investing

How can I make my investments reflect my values? Can I do that without giving up long term market performance?

We have heard this question from many of our clients. The challenge we keep hearing is in aligning the investors’ specific values and preferences with the environmental, social and governance (“ESG”) mutual funds or ETFs that are available today. Many investors don’t fit a standardized mold and find it difficult to achieve their specific ESG goals within these one-size-fits-all portfolios.

We believe a better solution is a uniquely tailored portfolio designed to meet your specific goals. Towards that end, we have partnered with O’Shaughnessy Asset Management (OSAM) who developed a new tool called Canvas.* It uses your choices to combine the best of low-cost indexing with Socially Responsible Investing.

We begin with our standard portfolio of low-cost indices. Using OSAM software, we convert our mutual fund holdings into direct holdings of equities. Your decisions then negatively screen out the companies and sectors from your portfolio that do not align with your values.

*Canvas disclosures can be found here.

Environmental Issues:

Carbon Footprint & Climate Change
Removes companies that have the most negative impact on climate within their respective industries. This includes companies that release the most carbon emissions, have the largest carbon footprint based on their operations and/or products, and have been part of extreme controversies related to climate change. NOTE: This does not divest from all ties to fossil fuels.

Deforestation & Biodiversity
Removes companies that manage forests unsustainably and are offenders of biodiversity.

Pollution & Waste Management
Removes companies that create the most waste, are responsible for the most green-house gas emissions, do not use available recycled materials, create products that are difficult to recycle and do not implement a recycling program, and companies with a poor track record of managing hazardous waste or oil spills.

Water Stress
Removes companies that negatively impact the global water supply and are stressors to the world’s fresh-water basins. It also penalizes companies with no or poor-quality programs to reduce fresh-water consumption.

Social Issues:

Data Privacy
Removes companies with the weakest data privacy policies and data security programs, as well as those with government data sharing programs that are lacking transparency and thus cannot ensure due process.

Diversity & Inclusion
Removes companies that show the most discrimination, those taking little effort to ensure equal opportunity, currently have limited diversity and display limited effort to improve diversity, and companies that do not report diversity efforts.

Fair Labor Rights & Supply Chain
Removes companies with a history of unfair wages and unsafe working conditions, have experienced fatalities and significant injuries related to work conditions, have ties to child labor, have anti-union policies, and companies that use conflict minerals.

Governance Issues:

Corruption & Bribery
This indicator provides an assessment of the quality of the company’s policy to combat bribery and corruption.

Gender Diversity & Women Empowerment
Removes companies that do not have a woman on their board or executive committee.

Governance Structure & Accountability
Removes companies with questionable ethical track records, those that lack accountability for executives, and display poor transparency.

In addition to screening companies out, you can also express your values by tilting toward companies with better overall profiles based on several of the themes above, like owning more companies with a better carbon footprint profile or those with more proactive labor practices.

Interested in learning more about Direct Indexing and Socially Responsible Investing?

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Ritholtz Wealth Management is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Ritholtz Wealth Management and its representatives are properly licensed or exempt from licensure. This website is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Ritholtz Wealth Management unless a client service agreement is in place.