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Sustainable Investing, a Conversation with Your Advisor

Sustainable investing is an area of growing interest among socially conscious investors. Unfortunately like with many financial matters, Wall Street has delivered glib, feel-good marketing along with higher fees under the guise of doing well.  It’s the view at Curran that building a sustainable portfolio around quality companies can be done delivering competitive market returns after fee.  Whereas Wall Street would have you believe that it’s easy, invest in funds selecting stocks with high scores for (ESG) environmental, social and governance issues and voila you will earn market beating returns. 

When something sounds to good to be true, it is frequently later verifiably proven to be the case.  For now, you have to settle for our assertion with supporting arguments.  Where to begin? Back in the summer of 2019 it was revealed that Vanguard misled investors with its marketing for its $500 million ESG US Stock Fund.  Marketing materials and its pitch to investors prominently featured the claim that the fund was fossil fuel free.  No investments would be made in companies operating in the fossil fuel industry.  The claim was proven to be false.  Mistakes happen.  In this case however, it happened multiple times.  The fund invested in global oil services company Schlumberger, pipeline company Kinder Morgan and refiner Marathon Petroleum.  In the case of the last company, one may reasonably think the name gave it away.  Vanguard did what large companies do well, blame someone else, the index provider FTSE. 

I do not bring up this example to embarrass Vanguard or to suggest we are perfect.  Far from it, we once bought Exxon shares for a client that objected to owning shares of companies in the fossil fuel industry.  The restriction was missed, a personal apology made and the client was given options and input sought.  I bring the topic up to make the case that investing in sustainable companies requires a conversation between you and an advisor with a deep knowledge of the companies considered for investment.  By passing it off to a far-removed 3rd party, one winds up not knowing what they own.  In this instance too, one is offered a weak excuse from Vanguard.  Those companies were in the index.

There are clients who request, we avoid investing in companies with business operations in the fossil fuel industry.  We have he ability to do that in our trading system by blocking certain industries.  Other common industries that clients object to include gun manufacturers, tobacco and defense companies.  Sticking with fossil fuels though, should you impose a blanket restriction? Many investors do not realize that by doing so, one eliminates the largest alternative energy company in the United States, Next Era Energy, ticker symbol NEE.  Perhaps a conversation with your wealth manager or a member of the investment committee would prove worthwhile before eliminating the possibility of investing in the company’s shares.  Next Era Energy markets itself as the world’s largest producer of wind and solar energy.  The investment committee finds it a remarkably well-run company and believe the growth of its renewable energy division will continue to grow at impressive rates for many years to come. 

Should Next Era Energy’s legacy gas utility division preclude us from investing in its shares? I would suggest no.  In the view of our investment committee, let’s not miss out on opportunities to invest in transformative companies because of blanket restrictions forbidding an investment in fossil fuels.  Let’s discuss it first and we will respect your wishes and principles.  It’s your money and you deserve to work with an advisor who respects your values. 

As an advisor who has spent time learning the sustainable investment marketplace, I believe that it’s important to work with an advisor you respect and trust.  It is important because Wall Street has done a remarkable job marketing products such as sustainable investing ETFs and mutual funds garnering higher fees while making investors think that the companies have been scrutinized closely for inclusion.  Pick some shares of companies with high scores for environmental, social and governance practices and one will invariably outperform.  The critical investor may come to find that it in fact is not so easy.  Vanguard and Black Rock charge significantly higher fees for their sustainable funds.  We have seen examples. One infamous from Vanguard, outlined here, that shows it’s not so easy building a sustainable portfolio. 

For those committed to sustainability, it’s a conversation worth having with us.  At Curran we manage a sustainable portfolio of companies in our Curran Sustainable Growth strategy, while adhering to the same high-quality investment philosophy used across our other equity strategies.  We add an emphasis for evaluating companies based on sustainability and how they measure for environmental, social and governance factors.  We believe sustainable investing needs to be approached thoughtfully not by indexing or a simple ranking of companies within sectors by ESG scores.  Next time I will share more with you about our Sustainable Growth portfolio.  In the interim, please contact your wealth manager or a member of the investment committee if you want to learn more about our views on sustainable investing.