Investing with Purpose

When I moved to Colorado from Ohio in 2005, I had an awakening of sorts. I developed sense of respect and awe for the natural world. This type of “enlightenment” is easy in a place such as Colorado. Over the years (thanks to my wife Felicia), my appreciation and inquiry extended beyond just enjoying and preserving our natural surroundings. I started to question, for example where our food came from and how it was harvested, processed and brought to us.

This appreciation shortly turned into practice. I joined a few non-governmental organizations (NGOs) that focused on conservation. And I became more conscientious about what I was eating and purchasing, consuming more sustainable and organically grown products (despite the significant premium). Despite creating this “lifestyle makeover”, it was difficult to perfectly align my new personal and moral values with my capitalist ones.

What was still a nascent, niche market in 2005 has now become a market-wide accepted theme in the investment management world. The likes of Bank of America, Goldman Sachs, Morgan Stanley have all now embraced the concept of Environmental, Social and Governance (ESG) investing opening up specific units to create products and deal flow to help satiate increasing investor demands. Products such as actively managed ESG funds from the likes of Calvert Investments to a multitude of ESG, sector specific ETFs such as the Powershares Cleantech Portfolio offered by Invesco started to dot the investment landscape.

Despite burgeoning product offerings, it is still rather difficult for investors (specifically retail investors) to be invested in a 100% ESG themed portfolio with comparable market returns. It is especially difficult when you have investors like myself who have a significant portion of their investable assets in their employer offered 401(k) plans which are notoriously limited and seldom if at all offer any type of ESG product.

So this is where my journey begins. I will, to the best of my ability, try to align my wife and I’s investment decisions with our personal values by constructing a portfolio that allows us to also achieve a return that will also get us to our financial goals. As with any investment management approach, we must start with an investment policy and then move to portfolio construction. I will follow the framework implemented by the KL Felicitas Foundation (KLF) a foundation established by Lisa and Charly Kleissner. The purpose of the foundation was to build an “investment portfolio that would align with their values while also ensuring KLF’s ability to meet its financial obligations.”[1] Sonen Capital outlined the journey of the KLF in a piece titled Evolution of an Impact Portfolio: From Implementation to Results. While you typically see this type of approach used for large, HNW/UHNW individuals I believe it is important for ALL investors to consider using this concept.

While you typically see this type of approach used for large, HNW/UHNW individuals I believe it is important for ALL investors to consider using this concept.

Strategy Implementation

Articulate personal mission and values
Create impact themes (social, environmental, energy)
Define Impact
Develop Impact/ESG Investing Policy

Implement & Maintain Strategy

Identify product types

Analyze products/companies (construct models)
Analyze and evaluate impact from investment (create metrics such as our portfolio contributed to generating X MWh in renewable energy)[2]
While we do have a few ETF’s related to renewable energy in our portfolio, we had never developed a coherent strategy on how to fully implement socially responsible investing in our portfolio and what that meant in terms of impact.

I will update as I make progress on this journey. My intent is to not only become a student expert in the space, but also hopefully encourage more of us to consider socially responsible investments in our overall portfolio.

Works Cited

[1] Sonen Capital (2013), Evolution of an Impact Portfolio: From Implementation to Results. San Francisco, CA: Sonen Capital.

[2] Ibid.