Ask the right questions to pursue specific goals.
The world’s wealthiest are increasingly putting their money to work for the causes that are most meaningful to them. We see this in initiatives like the Giving Pledge, which more than 200 billionaires have signed, pledging to donate a majority of their wealth to philanthropic endeavors. While donations like these and other charitable efforts are deeply impactful, you may be realizing that as a companion to giving, you’d like to also harness the full potential of investing in companies that align with your values to create change.
We see the trend toward values-driven investments also born out in recent data. A recent EY 2021 Global Alternative Fund Survey found, when investors were asked to rank their top areas of focus, that demand for ESG initiatives increased the most year over year. The investors who ranked it as a No. 1 priority jumped from 17% in 2020 to 22% in 2021, indicating a growing demand overall for these kinds of investments.
Though it’s simple in premise, finding the right sustainable investments as a high-net-worth investor often proves complex in practice. At the root of the challenge is the fact that sustainable investing means something different to everyone. For some, it may mean applying stringent criteria to screen out specific kinds of investments, while for others, it means investing in companies specifically to drive positive change from the inside.
For example, a nuclear power plant might look like an investment in clean energy to one investor but like a nuclear risk to another. Alternatively, an alternative meat company may not appeal to you if you value unprocessed foods, while others might see that company as a potential solution to the climate’s methane problem. Working with an advisor is important to develop a custom strategy aligned specifically with your goals.
As you may have already experienced, relying solely on an ESG label can hinder your ability to find the best fit for your portfolio. In order to go beyond the label, it’s important to first get clear on your values, then work with a knowledgeable advisor to go beyond those traditional screens.
An interesting example might be companies like data centers. There’s nothing overtly sustainable or environmental about a data center, but one that’s created to be ultra-energy-efficient with water-cooled facilities that significantly reduce its carbon footprint would be attractive.
You can also work with your advisor to explore a broad swath of investments that align with your chosen causes, sometimes in industries where you would least expect it. For example, if regenerative agriculture and food are a focus for you, consider investing in distribution companies using electrically-powered semitrucks to transport food, software and data firms helping farmers quantify the impact of their regenerative ag practices, or pharmaceutical manufacturers creating plant microbes that replace the need for industrial fertilizer. These are only a few examples; there are plenty of sustainable investments that may not be included in an ESG screen but may be environmentally or socially responsible just the same.
As with any other investment, there’s no such thing as perfect when it comes to sustainable investing. There will likely be tradeoffs involved, and searching for a perfect company that meets every single one of your criteria almost always leads to paralysis. Instead, actively broaden your search beyond an ESG label and partner with your advisor to brainstorm different types of companies that might drive your values forward. Then aim for the best possible alignment with the rest of your goals.
By clearly identifying your values and expanding your search, you’ll be in a better position to find a substantial number of quality options to choose from. It’s important to remember if you start with 100 potential investments, you might end up with only two or three that are actually appropriate.
Once you find those investments, consider engaging your peers to invest alongside you. The potential for positive impact expands with the more individuals that are involved. Your advisor may even be able to connect you with like-minded investors as well.
We live in a culture that is a fusion of right now and what’s next. We drive cars powered by fossil fuels but we can also walk into Burger King and order an Impossible® burger. Even if we have a clear-cut strategy and outline of our values, the right sustainable investment might not be a one-to-one matchup. Instead frame your investment thinking in this area in terms of “as much as possible,” and envision how it will help work toward a future you want to live in.