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The ProVise Advisor Team
ESG INVESTING: IS IT TIME TO RIDE THE GREEN WAVE?
Daniel Mannix, CFA®
While 2020 had its fair share of buzz words, arguably none were
bigger for the investment world than ESG. The acronym stands
for Environmental, Social, and Governance and broadly refers
to sustainably focused investing that considers the ESG impact
of corporations when analyzing them. ESG investing is widely
regarded as a “once in a generation” investment theme while
we at ProVise believe it will ultimately grow from a thematic
afterthought into a core consideration. Many are jockeying for
a position to ride this massive green wave, but investors must
be aware of “greenwashing” in which some aim to slap an ESG
sticker on any and everything, in what can be characterized as
misleading at best. The well-informed, discerning investor can
successfully navigate this fast growing segment while having
a positive impact on the environment and society as a whole.
So, what exactly qualifies as ESG? All ESG is not created equal
and there are several different categories. Some ESG investing
simply excludes certain industries such as businesses that deal in
firearms, fossil fuels, or tobacco. Others fully integrate ESG criteria
into all facets of the investment process and simply select the
best-in-class operators in each industry. As mentioned, investors
must be wary of greenwashing, whereby false impressions
or misleading information about a company’s products or
processes is used to portray them in an environmentally or
socially friendly light. The truth is that there is no regulatory
body that verifies a corporation’s ESG claims nor are there
standard disclosures required for public companies. This lack of
transparency and accountability can cause confusion for investors
and corporations alike. Positively, there are now a handful of third
party (unbiased) data providers that are publishing ESG scores
for public companies in an effort to bring more transparency
to the market.
We believe it’s only a matter of time before the Securities and
Exchange Commission (SEC) or some other regulatory agency
begins to require standardized ESG disclosures, which would
only bring more transparency to this ever-increasingly important
aspect of a business’ operations. In order to help bring that
About ProVise Management Group, LLC: ProVise is a financial planning and investment management firm registered with the Securities and Exchange
Commission (SEC) and has been in business since 1986. Our 15 professional advisors serve approximately 1100 clients in over 30 states. As of 12/31/2020
we were managing approximately $1.6 billion for our individual, corporate, not-for-profit and 401k retirement plans. Please visit our website at: provise.com.
Investment Advisory Services offered through ProVise Management Group, LLC. The information herein is general and educational in nature and should
not be considered legal or tax advice. Tax laws and regulations are complex and are subject to change.
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transparency and integrity to the market, many in the investment
community have committed to the United Nations-supported
Principles for Responsible Investment. This international
network of over 3,000 signatories, representing over $23 trillion
in assets under management, has pledged to adopt the UN PRI’s
framework to develop a more sustainable global financial system.
This continued push from the investment community will likely
speed up adoption of further ESG disclosure for public companies.
So, why invest in ESG now? Environmental and social advocates
have long been on the fringes of the investment community and
ESG investing has been popularized for at least 10 years now,
but 2020 was a transformative year. In one of the most volatile
years in recent history, it was really the first time the investing
public saw ESG go through a bear market and it proved to be
more than just a bull market luxury. In fact, ESG outperformed
the traditional stock market last year. Also, twice as many ESG
funds were launched in 2020 versus the prior year and there were
a record amount of inflows (more than Bitcoin!), bringing total
assets under management to over $1.3 trillion. Looking forward,
we expect this green wave to continue given an unprecedented
wealth transfer to the millennial generation (highly focused
on sustainable investing) as well as growing interest across all
generations as continued outperformance dispels the myth that
sustainable investing means sacrificing returns.
The ESG landscape continues to evolve and it can be confusing
for many. At ProVise, we provide our clients with transparent,
comprehensive ESG investments that are tailored to meet their
financial goals. We use a multi-layered approach that begins by
excluding certain industries and is then optimized to maximize
exposure to companies with the highest ESG ratings. We are
invested in the future of sustainable investing and can help you
navigate this new frontier with confidence. Reach out to one of
our CERTIFIED FINANCIAL PLANNER™ professionals to learn
more about ProVise’s customized ESG investment solutions and
how they could help you reach your future goals.
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