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A few weeks ago a client drew our attention to an unsettling article published in The Nation. You’ll understand why “unsettling” when you read the title: “The Right Hates Environment, Social, Governance (ESG) Investing. The Left Should, Too.” [i]

Really?! I admit I was both a bit incensed by this seemingly one-dimensional opinion piece and at the same time in admiration of the author’s provocative title. After all, provocative titles are how you get people to read what you’ve spent time thinking and writing about. Kudos to author Brad Swanson for successfully getting me to not only open the article but read it thoroughly. And much gratitude goes out to our client for sending it as it identified the perfect opportunity for us to talk about what’s behind the letters ESG and outline how our Hansen’s team views and puts this term to use—day in, day out.

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We now see the SEC investigating some ESG fund marketing strategies.

The term ESG first appeared in 2004 and its letters stand for Environmental, Social and Governance. As an investing concept, it means taking consideration of a company’s carbon emissions, employee policies and diversity of its board members. For companies, ESG can be used as a marketing tool—often in a selective and ‘green-washing’ way that rightfully invites a critical eye to the term. Politically, ESG is under fire from both sides: the right touts it as a ‘woke agenda’ that uses American investors’ money to divest from fossil fuel industries and create lower returns, while the left warns of the potential for harmful industries to manipulate a higher ESG score for themselves while still causing damage inherent to their products. Tobacco manufacturers, for instance, can raise their ESG score by using renewable electricity and reusing wastewater, but their company still places profit over human lives. [ii] Increasing interest for ESG funds from investors appears to have fueled increasing unethical use from companies in their marketing. Consequently, we now see the SEC investigating some ESG fund marketing strategies.[iii]

In a recent “Sustainable Reality” report, the Morgan Stanley Institute for Sustainable Investing affirms both increasing investor demand for ESG funds as well as their outperformance of traditional funds, illustrating how funds that consider ESG issues may be better situated for long-term performance. In the first six months of 2023, ESG median returns across all classes and geographies showed returns of 6.9%, compared with 3.8% for traditional funds. [i] Additionally, as more attention is drawn to ESG investing from both shareholders and the public, corporations are facing more scrutiny and accountability regarding their claims of adherence with these concepts.

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While ESG also continues to grow as a hot-button issue, our approach to choosing investments with Environmental, Social and Governance factors considered remains about the same: we do our own extensive research. By using a variety of screening tools, we continually gather scores on investments for their involvement in fossil fuels, deforestation, gender equality, civilian and military weapons, prisons and tobacco. ETHOS, Morningstar and YourStake are some of the tools we use but we also talk directly to fund company managers and resource an ever-widening community of ESG-minded advisors nationwide to keep up-to-date about our best fund options. All of that knowledge is balanced and informed by a fund’s market performance over a sustained period of time. Our belief is that investors should not have to choose between performance and their values.

We want to take this opportunity to spell out more clearly ‘what we do’ not because we want to toot our own horn but to express our gratitude for having clients who led us down this path some 30 years ago. Our clients then and now come to us with their requests to match their values with successful investments. Some call this Doing Well by Doing Good. That is what is at Hansen’s Advisory Services core mission and we plan to continue expanding our knowledge and expertise to serve our most important assets—our clients.

Stay tuned for ESG’s sibling: SRI

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