ESG and the Values Aligned Experience

October 8, 2021

Welcome back to our ESG/Values Aligned investing series. Our previous two posts, What is ESG Investing and ESG Stock Investing, served to both identify what ESG is (and isn’t) and further refine down the spectrum of ESG investing into a BSW framework that is easy to follow.

This piece will provide some color around the BSW Values Aligned experience – from the first meeting with your BSW team, to portfolio activation. The hallmark of this entire experience is threefold: communication, transparency, and confirmation.

It starts with a Conversation…

BSW guides our clients through every step of the Values Alignment journey. In most cases, this begins with a conversation that serves to better understand a client’s unique interests, passions and causes. When we understand what is important to each client, we can both incorporate and prioritize ESG themes within investment portfolios.

For investors that invest jointly/alongside a partner, it is common for different themes to emerge. Not to worry! BSW can target more than one theme within an investment portfolio. For instance, one investor may identify social justice as their priority while their partner feels climate change is most important. To us, Values Aligned investing needs to be flexible, inclusive, and relatable for clients to feel good about the authenticity of their portfolios.

What do ESG Investments look like?

You may be thinking, this is great – but what does this look like in the context of my investment portfolio?

BSW takes pride in cultivating long-term relationships with outside investment managers. We are selective in who we partner with and take our time when building these relationships. In fact, BSW investment professionals speak with potential investment managers well before we decide to allocate investment dollars their way. We believe these thoughtful relationships benefit our clients by giving them access to managers and strategies that may often fly under the radar and/or are cutting-edge means of accessing ESG investments that other asset allocators and investors may not have adopted yet.

What do we look for in an ESG Manager?

First and foremost, the managers and strategies we select must stand on their own. In other words, expected returns are paramount. What we add to the equation is the manager’s methodology and view on ESG factors and Impact. It is our belief that most managers can provide compelling ESG marketing material or performance history. Similarly, it’s easy to label an investment strategy ‘green’, ‘sustainable, or ‘impact-oriented’.  Our investment managers must talk the talk and walk the walk. In other words, our goal is to partner with managers, and firms, who join us in our commitment to make life better for people and the planet and who believe, at their core, in what we are trying to accomplish.

BSW Values Aligned clients will generally access our chosen ESG managers directly through separately managed accounts (SMAs). Why do we engage managers directly instead of investing through ESG mutual funds or ESG ETFs? The key benefits to using SMAs come from owning individual stock or bond positions are as follows:

  • Increased transparency
  • Customization
  • Tax efficiency

Now that trading fees have come down close to nil, we can efficiently hold what amounts to your own personal mutual fund within an account. In other words, you’ll hold anywhere from 40-200 individual stocks within one SMA. An SMA on the fixed income side will look similar, with multiple individual bonds maturing per year out to roughly 12 years.

BSW gets a daily report of what you hold instead of waiting months to understand what you held in a mutual fund in arrears. SMAs also enable BSW to add tax-loss harvesting capabilities to any account to maximize after-tax returns. Importantly you know exactly what you own and why you own it.

What does the Overall Portfolio Pie look like?

After thoughtful goals-based discussions, we attempt to create a diversified Values Aligned portfolio that integrates your values across most asset classes. Depending upon the goals of the portfolio, along with stock and bond exposure, BSW typically incorporates real-estate, private equity, and infrastructure – to name a few.

It is important to note our investment strategies do not simply avoid specific industries or sectors, like oil companies or tobacco products. Instead, we use strategies that drive sustainability to the forefront by seeking opportunities for positive social and environmental change.

Staying on Track with ESG Reporting

Our work does not end once we have implemented an investment strategy. In fact, after implementation, we begin the next leg of the Values Alignment journey – reporting.  At BSW, we not only provide clients with financial reporting, but we can also report on the positive Impact of a client’s portfolio.  Did you ever consider you could quantify how many metric tons of CO2 emissions your investments helped to avoid? How about knowing how many companies you are invested in that have female members in senior management? Along with keeping you on track to meet your financial goals, we report back on whether you are on track to meet your ESG goals as well.

Stay tuned for our next blog in the ESG series, where we will expand on how BSW reports impact back to clients in real world terms!

Learn more about ESG Investing with BSW Wealth Partners.