In our last two pieces we’ve covered the following:
Now we’re going to dig into something of which all intentional investors should be aware: greenwashing.
The term “whitewashing” has been around for many years and has had several different meanings: from preferring white actors, directors, etc. in the entertainment industry to “glossing over or covering up something that is immoral, illegal, or otherwise bad (as in ‘a book which whitewashes the country’s troubled past’),” its significance is never good.
Recently we’ve also heard the term “sportswashing” – it was thrown around quite a bit when several US professional golfers joined the LIV Golf league (a Saudi Arabian-backed golf tour).
In a nutshell, “Sportswashing is the practice of an individual, group, corporation, or government using sport to improve their tarnished reputation, through hosting a sporting event, the purchase or sponsorship of sporting teams, or by participation in the sport itself.”
Replace “white” or “sports” with “green” and you might see where I’m going with this.
Companies have engaged in greenwashing via press releases and commercials touting their clean energy or pollution reduction efforts. In reality, the company may not be making a meaningful commitment to green initiatives. In short, companies that make unsubstantiated claims that their products are environmentally safe or provide some green benefit are involved in greenwashing.
You can see how this might become a problem when an investor is trying their best to support environmentally friendly businesses.
While many advisors can assist you with ESG investing, it might be worth finding one who specializes in it. Not only will you know that your values likely align with that advisor, but they will also have processes that help you…
Socially Responsible Investing (SRI)/Environmentally Social Governance (ESG) investing has certain risks based on the fact that the criteria excludes securities of certain issuers for non-financial reasons and, therefore, investors may forgo some market opportunities and the universe of investments available will be smaller.
In my previous piece, we discussed why climate change isn’t just a global problem…it’s a female problem as well.
As the climate shifts, women are more adversely affected because of their lack of human rights, poverty, and the systemic violence that is often a result of catastrophic events.
Again, we go back to the question: What does this have to do with financial planning?
With more and more women taking control of their finances, many are looking to not only plan for their own future but the futures of others as well. With 62% of women indicating they’re concerned about climate change more than retirement planning (at 51%), it makes sense to find a solution that serves both.
This renewed drive to live intentional lives is happening at the same time that the face of wealth is becoming more female. As of 2020, women in the U.S. controlled $11 trillion, about a third of financial assets, and that number could reach $30 trillion by 2030. These two trends— women’s growing financial clout coupled with their recharged commitment to leading a meaningful life—are the twin engines behind women making a greater impact than ever before. (Source)
ESG investing, or environmental, social, and governance investing, aims to be the solution. Here’s the official definition of ESG investing from Investopedia:
Environmental, social, and governance (ESG) investing refers to a set of standards for a company’s behavior used by socially conscious investors to screen potential investments.
Environmental criteria consider how a company safeguards the environment, including corporate policies addressing climate change, for example. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
Sounds like a pretty good deal, right? Help the world AND invest in your retirement? More and more people are latching onto this idea; in a June 2022 Harvard Law study, they found “…more than a quarter of global investors say ESG is central to their investment approach (26% vs. 28% in 2021).”
Another option is what is considered a more focused approach called SRI, or Socially Responsible Investing: this includes “eschewing investments in companies that produce or sell addictive substances or activities (like alcohol, gambling, and tobacco) in favor of seeking out companies that are engaged in social justice, environmental sustainability, and alternative energy/clean technology efforts.” (Source)
While ESG investing might be sounding better and better to you, it’s important to note that it’s still in the relatively early stages and you should know the pros and cons. For example, one con that Investopedia points out is:
“…you will not be able to hold the full universe of stocks available in the market. After all, tobacco and defense, two industries avoided by many ESG investors, have historically produced well-above-average market returns and can buck recessionary trends. In other words, U.S. investors may be sacrificing a small amount of returns in exchange for making investments that fit their values.”
However, on the pro side…
Some have argued that, in addition to their social value, ESG criteria can help investors avoid the blowups that occur when companies operating in a risky or unethical manner are ultimately held accountable for its consequences. Examples include BP’s (BP) 2010 Gulf of Mexico oil spill and Volkswagen’s emissions scandal, which rocked the companies’ stock prices and cost them billions of dollars.
The bottom line is that no matter how you choose to invest, the most important factor for your portfolio is diversification. It is possible to have a fully diversified portfolio with only ESG investing but that may not be possible for everyone. An advisor can help you find the right balance for you between ESG and more traditional investing.
However you choose to invest your money, keep in mind that you could have the power to make an impact – and that’s an exciting prospect.
“About 39% of [Gen Xers] have included sustainability in their portfolios, and they often care about causes like water quality and quantity, renewable energy and lower carbon emissions….
There’s still one wildcard that could change the tide for middle-aged investors: a hefty inheritance from their relatives. Between 2018 and 2042, aging households will possibly hand out $61 trillion to their heirs, with Gen X being the primary beneficiary. This transfer of assets may flow into sustainable investments, as younger generations invest differently than their elders.” (Source)
But how do you choose what to invest in? In the next piece, we’ll discuss “greenwashing” and how working with a financial advisor can help you ensure your investments are going to reputable companies with values that align with your own.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Socially Responsible Investing (SRI)/Environmental Social Governance (ESG) Investing has certain risks based on the fact that the criteria excludes securities of certain issuers for non-financial reasons and, therefore, investors may forgo some market opportunities and the universe of investments available will be smaller.
In a 2022 Financial Wellness Survey conducted by Ellevest, 62% of women indicated they’re concerned about climate change. In fact, “more women ranked it as a top financial concern above retirement planning (51%), credit card debt (46%), stock market (38%), and childcare costs (30%).”
This makes sense given what we’re starting to see across the globe with increasingly intense wildfires, flooding, and storms – but for women, the impact goes deeper than that.
The ripple effect created by these catastrophic events is more acutely felt by the world’s most vulnerable populations: women and girls.
That makes this not only a global problem, but specifically a female problem.
You might be wondering why I’m writing about climate change on a financial planning blog, and we’ll get to that. You’ll see how you can make a difference through your investments so that you don’t have to make a choice between helping the environment and saving for retirement; you can do both.
But first, let’s talk about what’s at stake.
Living in the United States it can be easy to look at the climate issue as something that basically affects our weather. Yes, many people in this country have found themselves in dangerous situations as they evacuate fires and lose homes to massive flooding - but compared to other areas around the world, we have it pretty good.
Here's why.
…women are more likely to live in poverty than men, have less access to basic human rights like the ability to freely move and acquire land…. In fact, women are denied property rights in half of the countries around the world. They are often barred from borrowing money for fertilizer and tools, which prevents them from successfully guiding their crops to harvest. They also can have trouble accessing markets to sell their harvest.
As soil quality worsens and water becomes more scarce, women will be less able to find the credit and financing they need to be resilient to the changing conditions. And without any possibility of buying new property, many female farmers will be stuck with ever-declining yields on their existing land.
"The majority of women lack deeds or titles to the lands that they farm, so their avenues for compensation or redress are limited when climate change adversely affects their agricultural output," Alam said. "Generally speaking, it’s not as if smallholder farmers have insurance, either, so they have to look for alternative income-generating activities, which can leave them desperate and vulnerable to exploitation." (Source)
Climate change is rarely discussed in relation to violence against women. It has become a global common concern due to its role as a contributing factor in exacerbating (sexual and gender-based violence) SGBV. Though entire populations are affected by climate change, women and girls face double victimization as human beings as well as because of their gender.
During emergencies, especially conflicts and disasters, women are at high risk of SGBV because of crisis in the family and society as well as due to sudden breakdown of family and community structures arising from forced displacement. As a result, women and girls become more vulnerable and face physical, sexual, psychological harm as well as denial of resources or necessary services. (Source)
Gendered roles in much of the world also make women more susceptible to the negative impacts of climate change. Women are the primary gatherers of water, food, and fuel, and they dominate subsistence farming, caregiving, and cleaning. These duties are more prone to feel the effects of environmental degradation and rising global temperatures as they rely heavily upon natural resources. In the future, this can drive a negative feedback loop of increasing poverty. (Source)
If you’re looking at these statistics and wondering what you can do about this insurmountable problem, take a deep breath; as women have always known, we’re stronger together. Now, it’s time for us to take that togetherness to a global level.
In the next piece, we’ll talk about how investing in your own future can be a big step toward helping others. Through ESG (Environmental, Social, and Governance) investing you’ll be able to invest in companies that can not only help your investment accounts, they’re also helping combat this crisis through their own initiatives.
Socially Responsible Investing (SRI)/Environmental Social Governance (ESG) Investing has certain risks based on the fact that the criteria excludes securities of certain issuers for non-financial reasons and, therefore, investors may forgo some market opportunities and the universe of investments available will be smaller.
