Choosing an ESG Robo-Advisor
ESG and sustainable investing is wildly popular today. With increasing attention on climate change, women’s issues, clean energy and corporate governance investors are clamoring for ESG asset management to invest with their hearts. According to the Forum for Sustainable and Responsible Investment (USSIF) Report on US Sustainable and Impact Investing Trends of 2020, one third of professionally managed investments or $17.1 trillion, incorporate sustainable investing strategies.
Robo-advisors are uniquely positioned to make targeted and general ESG investing easy and affordable. Understand how to construct an ESG portfolio, discover ESG trends and find out if ethical funds underperform.
What is Sustainable Investing?
Sustainable Investing vs ESG
Sustainable investing is an investment style that considers the environment, social issues and corporate governance (ESG) to produce competitive financial returns along with a positive impact on society. ESG and sustainable investing aren’t necessarily interchangeable. ESG is a method for evaluating companies and determining whether they meet certain criteria. ESG is one component of investment analysis. While Sustainable investing is the umbrella that includes companies that demonstrate adherence to one or more ESG criteria.
Examples of ESG and Sustainability Investment Categories
Source: US SIF Foundation
Many investors today want to earn solid returns from their investments and make an impact. The good news is that you can do both, without hurting returns. From broad ESG index funds to niche ESG portfolios that target the causes that you care about, there are many low-cost ways to profit and do good with your investment dollars.
How to Integrate ESG and Sustainability into Your Investment Strategy
As with any financial decision, decide what’s important to you, what you value and the causes you prefer to support with your money.
Many investors seek information and guidance to help manage their portfolios. While others prefer a self-directed DIY approach. First, we’ll cover ESG asset management with a robo-advisor, in general. Next, we’ll delve into Sustainfolio, a robo-advisor well-suited to provide targeted ESG portfolios and management, for low fees.
Why Choose a Robo-Advisor for Sustainable Investing?
If you’re a hands-on investor, confident in your ability to manage an investment portfolio and create an ESG investing strategy that aligns with your values, then there are many ETFs from which to choose. But, if you’re like most of us, you want some investment guidance to make sure that you’re investing well, gaining solid returns and minimizing risk.
Robo-advisors typically offer affordable investment management, low-fee ETFs and well-diversified portfolios. For those seeking guidance with their ESG investing, a robo-advisor investment manager is worth a look.
Many robo-advisors offer ESG investment choices. Typically, these platforms add an option to replace traditional index ETFs with ESG index funds. Sample ESG funds include offers from Vanguard, iShares, Parnassus, Nuveen and SPDR. Some funds are targeted, like the SPDR S&P 500 Fossil fuel Reserves Free ETF or SPDR SSGA Gender Diversity Index ETF (SHE). While companies like Vanguard’s ESG funds offer both mutual and exchange traded funds covering stocks, bonds, index and actively managed offerings.
Most robo-advisors will choose a few ESG funds to accompany their lineup of broad based, diversified ETFs. Then they’ll replace some of their funds with comparable ESG ETFs.
Best Robo-Advisor for ESG Investing
But there’s only one ESG robo-advisor offered by a firm devoted only to sustainable investing that has been in the ESG investing arena for more than 10 years. Sustainfolio robo-advisor is a division of the Sustainvest Asset Management firm that is solely focused on SRI. Dale Wannen, the founder of Sustainvest Asset Management, isn’t doing SRI because it’s popular, but because that is what he believes in. Wannen is a shareholder activist, has been investing sustainably for two decades and is uniquely qualified to evaluate the ESG ETFs available on the market.
The Sustainvest robo-advisor is managed by Wannen while your assets are housed at Charles Schwab. This not only curtails any risk of privately held investments or proprietary funds, but also gives clients the comfort of knowing that their assets are being held by a solid custodian alongside an independent advisor who is not “selling products” or incentivized to push certain family funds.
ESG Investment Performance
If you’re worried about whether ESG funds underperform, relax, the research reflects positive performance of sustainable investing when compared with traditional funds. USSIF aggregated 15 ESG performance studies and offers a positive picture of sustainable investing performance. A recent 2021 Morgan Stanley Institute for Sustainable investing report found that sustainable funds outperformed their peers during the 2020 Coronavirus pandemic.
Morningstar’s 2021 Sustainable Funds US Landscape Report concluded that 69% of sustainable funds ranked in the top half of their Morningstar category with 37% in the top quartile returns.
The 2020 NYU Stern Center for Sustainable Business study aggregated more than 1,000 studies published between 2015 and 2020. Their findings reflected a positive correlation between ESG and financial performance. This study also found that ESG investing seems to provide downside protection during social or economic crises.
If you’re ready to explore “how to invest sustainably,” here are several strategies offered by the Sustainfolio robo-advisor.
ESG Investment Themes
From broad ESG index funds to niche offers, there are ESG investments to fit the values of any type of investor.
Core ESG Portfolio – A core portfolio will include companies that pass environmental, social and sound governance screens. This type of portfolio provides exposure to various dimensions of sustainability including lower carbon emissions, ethical labor management and greater board diversity. Sample ETFs included in a core strategy are a broad-based Nuveen USG Large Cap Growth ETF (NULG) and the niche Invesco Wilderhill Clean Energy ETF (PBW).
Environmental Impact Portfolio – This type of investment portfolio focuses on companies that are involved in the transformation to clean energy and the funding of green projects. Climate change is evident in widespread droughts, higher global temperatures, severe storms and more. This type of ESG portfolio reflects companies that are combating the ravages of climate change.
Funds included in an environmental impact portfolio include Invesco Clean Energy ETF (PBW), iShares Global Clean Energy ETF (ICLN), and additional broadly diversified ESG ETFs.
Governance Impact Portfolio – Similar to the environmental option, the governance impact portfolio targets both broad ESG funds and additional ETFs that include companies with strong corporate governance records. The types of issues that sound corporate governance firms target are avoidance of corruption, fair executive compensation, respect for shareholder engagement, fair employee wages and transparent corporate policies.
Sustainvest vs ESG Robo-advisor Competitors
Follow the money and experience when deciding which ESG robo-advisor to choose.
You can choose from any number of robo-advisors with ESG offers. Many robo-advisors throw in a few ESG ETFs and call it a day.
Other robo-advisors are funded by venture capital with massive growth and without the true commitment to ESG. Many are going with the ESG option due to its popularity, without the commitment or understanding of the landscape.
Sustainvest is not only uniquely qualified to evaluate the ESG ETFs, but also commits 1% of all revenues to 1% for the planet. This commitment to sustainability is a strong indicator of the commitment to the planet and our world, found in the Sustainvest platform. Sustainable investing is all that Sustainvest offers. The firm is the expert in this field of investing.
Sustainvest clients can speak directly to Wannen for an annual portfolio review or other questions about the investments. This type of personal access is rare among robo-advisors.
Sustainvest Fees and Minimums
Sustainfolio, the all-digital investing platform charges 0.50% of AUM and requires a $5,000 minimum.
Sustainvest Premium has a $100,000 minimum. This is comparable to Betterment Premium. The premium offer includes access to a personal advisor and financial planning. The fee structure is:
- $5,000 – $100,000 1.00%
- $100,000 – $1 million 0.75%
- $1 – $3 million 0.50%
- $3 million+ 0.40%
ESG Asset Management and Sustainable Investing Strategy Wrap up
If you want to invest, grow your wealth and preserve the planet, then ESG investing is for you. There are many paths to tap this growing sector of the investment universe from self-directed DIY, to hiring an investment advisor who will add in some ESG funds, or a broad based robo-advisor. If you’re serious about crafting an investment portfolio that is poised for growth while selecting companies that factor in ESG components, then look around the Sustainfolio Platform. You’ll be set up to do good and profit with your investment dollars.
Disclosure: This is a sponsored article.