To my clients interested in impact investing:
In this quarter’s newsletter, I wanted to provide an update on Hesperian’s latest impact research and activism and also discuss the current events going on in the impact investing world.
Carbon Markets Research
I am always researching new impact investments that could enhance your ability to sponsor positive change in the world (and hopefully also provide financial and/or diversification benefits in your portfolios). Over the last year, I’ve been evaluating the merit of an allocation to carbon markets. This work is now almost complete.
A more detailed description of how carbon markets work and why they matter is forthcoming. And we’d still need to fit any proposed Carbon Allocation into your existing portfolio and determine whether it would even be appropriate based on your unique situation and risk preferences. But with a position in this newer asset class, you can contribute to the global pricing of carbon and incentivize market-based solutions to the climate challenge (while potentially making a profit in the process!). It also allows you to effectively neutralize some or possibly all of your portfolio’s carbon footprint yourself without relying on every individual company you’re invested in to fall under a regulatory framework or make a commitment themselves. If interested, contact me to learn more!
Democratizing Impact Investing
At the beginning of the year, I was happy to see one of the impact equity asset managers I recommend launch exchange-traded fund (or ETF) clones of their responsible index mutual fund family. Prior to 2023, I’d have to think carefully about using their products: The management fees weren’t as low as I’d like. And if your initial investment was too small, I’d have to place you in the more expensive share class and look to switch to the cheaper one in the future. Because to get the lower expense ratio, you’d have to pay a transaction fee that only makes sense on a large allocation. Now the expense ratios on the ETFs are lower than even the cheapest mutual fund version! A move from 0.54% or 0.29% to 0.18% may not seem like much, but fees compound over time. This asset manager’s great stewardship of capital and shared interest in democratizing impact reaffirms my decision to approve their funds and use them in clients’ portfolios.
The Attack on ESG
Starting in Texas, conservative attorneys general across the country are attempting to prohibit the consideration of nonfinancial data, including environmental, social, and governance (or ESG) factors, by professional investors and fiduciaries. Now, I’ve been critical of ESG too, but because I don’t think that on its own or as currently practiced it can do what it claims to do, not because I think the aims aren’t valid. The problem is anti-ESG laws have the potential to also eliminate the few legitimate impact investment options even available today in your employer retirement plans and pensions (and if extended, restrict what I can and cannot recommend to you). And these new laws can restrict faith-based institutions’ ability to invest in accordance with their religious beliefs, so it’s not necessarily a partisan issue.
Who’s to tell a professional investor already bound by a fiduciary duty to end clients what information is relevant when evaluating an investment? As long as ESG options are not the only ones offered to plan participants, what’s the problem? Why not let individual investors choose off the menu as they presently do and at least provide impact investors the options they want?
So as my firm will from time to time, Hesperian Wealth recently joined a campaign, this one launched by the Interfaith Center on Corporate Responsibility1. Along with many others, I sent a letter voicing opposition to anti-ESG legislation to the President, Vice President, California’s Attorney General, and, importantly, my local Congressional representative, to whom it is most certainly not preaching to the choir. Here’s an excerpt from the letter:
I write to you as a constituent and wealth manager who works with clients seeking to invest in ways aligned with their values, faith, or causes they support. …
I am alarmed by what I see as a concerted campaign by certain political actors to curtail investors’ use of ESG as a risk mitigation framework, including proposed state legislation that would prohibit state pension funds from considering ESG factors in their investment decision-making. As you are aware, financial intermediaries and institutional investors are already bound by a fiduciary duty. Additional restrictions on their freedom to act in their clients’ best interests is an unnecessary intrusion. Whether or not an ESG risk mitigation framework will be successful at reducing investment risk, the government certainly should not be dictating to investment professionals and fiduciaries which risks should or should not be taken into consideration.
Anti-ESG legislation could require us to violate our fiduciary duties and cause economic harm to pensioners, plan participants, advisor clients, taxpayers, and the public interest …
I respectfully request that should you have the opportunity to weigh in on this critical debate, you stand in favor of investors’ right to make informed decisions regarding long-term investment risks.
Impact Reporting
That’s all for now. In January, I can provide you with a year-in-review Impact Report. In it, I hope to share some of the initiatives and successful engagements of the impact asset managers I recommend and that may be in your portfolio.
Eric R. Figueroa, CFP®
I am a Folsom, CA, fee-only wealth manager serving the Greater Sacramento area, California Gold Country, and the nation virtually. I offer financial planning and investment management, specializing in impact investing and personalized values-based investing.
All content presented in this article is for informational purposes only. Materials presented should not be interpreted as a solicitation or offer to buy or sell a security or the rendering of personalized investment advice, which can only be provided through one-on-one communication with a financial advisor. The content reflects the opinions of Hesperian Wealth LLC (HW), except where cited, which are subject to change at any time without notice. The information contained herein has been obtained from sources believed to be reliable, but the accuracy of the information cannot be guaranteed. All information or ideas provided should be discussed in detail with a financial, tax, or legal advisor prior to implementation.
Any reference to a market index is included for illustrative purposes only, as an index is not a security in which an investment can be made. Indexes are unmanaged vehicles that do not account for the deduction of fees and expenses generally associated with investable products.
Investing involves substantial risk, including the potential loss of principal. HW makes no guarantee of financial performance nor any promise of any results that may be obtained from relying on the information presented. HW may analyze past performance, but past performance may not be indicative of future performance.
1 Hesperian Wealth LLC (HW) has no affiliation with any organization mentioned in this article. Any link on our website to a third-party nonprofit or charity should not be construed as any recommendation of that organization by HW nor a recommendation or endorsement of HW or its services by the third party.