Episode 65: Personal Sustainable Investing with Ken LaRoe (Climate First Bank)
If you've wanted to know how you can use your savings and investments to advance sustainability, this is the episode for you! We highlight the basics of sustainable investing and banking and provide the tools and facts to allow Definers to determine their own individual actions and opinions. Plus, Jay and Scott talk about what they've done right (and not so right) with their own money, as well as how they are investing the podcast's money with sustainability in mind, which includes investing in the pursuits of our listeners. Our expert guest, Ken LaRoe, has started three values-based banks with his most recent being Climate First Bank. Tune in to hear about his entrepreneurial journey and how his bank helps its clients put climate first.
Learn more about natural environment here!
Episode Intro Notes
What We Will Cover
What is personal sustainable investing?
What are the different types of sustainable investing?
How big is the sustainable investing space and why is it becoming bigger?
What are the difficulties and downsides of incorporating more sustainable investing practices into personal investment strategies?
How can individuals practice sustainable investing?
How can you learn more about sustainable investing?
How have Sustainability Defined and Scott and Jay practiced sustainable investing?
Expert guest from Climate First Bank
Ken LaRoe, President and CEO, Chairman of the Board, and Founder
What is personal sustainable investing?
If you want to learn more about how you can help the environment and society with your investments, we believe that today’s episode will highlight the basics of sustainable investing and provide the tools and facts to allow Definers to determine their own individual actions and opinions. In other words, we won’t just get into what is sustainable investing but also how individual listeners can do it.
First, a couple quick notes about what this episode is not.
This episode does not focus on corporate sustainable financing or large institutional investors that invest on behalf of clients or members. It’s more for your average person with some savings and retirement accounts that wants to ensure more or all of their money is invested in a way that promotes sustainability while also understanding what that means for their potential financial return.
This episode is not financial advice. Please consult your financial advisor to assess the risks involved, and we encourage you to do your own research as you make your individual investment choices.
So, let’s start with the basics. There are many terms within “sustainable investing” that are similar but nuanced such as ESG investing, responsible investing, socially responsible investing, impact investing, and many others. We break many of them down in this episode.
The “Umbrella term”, sustainable investing, can be defined as an investing practice that takes a company or investment's impact on the environment and society into consideration. In other words, sustainable investing aims to bring investors financial returns and have a positive impact on the world.
Let’s also define ESG since we’ll be throwing that around in this episode. ESG refers to environmental, social, and governance. These non-financial ESG factors are increasingly considered when making investment decisions.
The E (or Environmental) factors relate to conservation of our world (e.g., climate change, air pollution)
The S (or Social) factors relate to consideration of people and relationships (e.g., gender and diversity, human rights), and
The G (or Governance) factors relate to standards for running a company (e.g., board composition, political contributions).
What are the different types of sustainable investing?
There are several different approaches that individual investors can pursue to align with their sustainable investing goals. In general, they fall on a spectrum between being motivated by financial return and non-financial return (i.e., more focused on impact than financial return).
These strategies can be applied across asset classes (stocks, bonds, real estate, angel investing, etc.).
Here in this episode, we’re going to focus on three strategies for sustainable investing: 1) impact investing, 2) negative/thematic/positive screens, and 3) ESG Integration. Let’s dive into the elements, functionality, and examples of each strategy to understand the potential pros and cons of each type.
1) Impact Investments
As defined by the Global Impact Investing Network (GIIN), impact investments are defined as investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.
“Impact investments” is more on the non-financial return end of the spectrum compared to thematic screening and ESG integrations, as it accommodates a range of return levels.
There are a variety of pros and cons with impact investments:
Pros
Impact investing provides a diverse array of investments that have been reported to overwhelmingly meet or exceed investor expectations for both social and environmental impact and financial return.
For example, one survey found 99% of respondents reported that their impact investments were outperforming or in line with their impact expectations.
Cons
As for setbacks, there are many remaining challenges for the impact investments market, including 47% of respondents from the same survey finding a significant challenge with suitable exit options (i.e., ways to liquidate or dispose of the asset). Also, the largest challenge cited over the next five years was “impact washing,” which is the practice of overstating or falsely claiming benefits of a product/service.
Impact doesn’t mean much if it isn’t tracked with relevant metrics and sufficient monitoring.
2) Negative/thematic/positive screens
Screening is a process that can help investors exclude or include specific values within sustainable investment portfolios.
Negative screening excludes specific companies or sectors associated with activities (such as tobacco or military), or specific sustainability risks (such as avoiding coal or oil companies, like Exxon, altogether).
Thematic screening seeks to pinpoint trends that are helping our world to be more sustainable and invest in stocks that will benefit from their growth (such as exclusively investing in residential solar panel companies).
Positive screening, (sometimes called “inclusionary screening”), aims to include best-in-class companies/initiatives associated with high-scoring ESG activities relative to other companies within the same sector (such as investing only in companies with upper-percentile ESG scores from ratings organizations like Morgan Stanley Capital International (MSCI))
Screening techniques are not created equally and can present many positives and negatives when investing.
Pros
Negative screening
Negative screening is inclusive as it weeds out the worst of the worst based on the particular screening criteria used and determines the rest of the companies to be acceptable. This can be beneficial to investors who are worried that other investing techniques may be too exclusive. It can also help avoid exposure to companies that are likely to perform worse in a low-carbon future such as oil companies.
Thematic screening
Thematic investing helps you to capitalize on future trends. Other investments, like mutual funds, provide diversification, but can lack relevant events, policies, and themes.
Positive screening
Positive screening quite literally allows you to “vote” with your dollar and play a role in accelerating those who are trying to be best-in-class on ESG. It also can help focus your portfolio on the companies that you think will perform best given expected future trends in policy, culture, etc.
Cons
For all screening generally, some critics state that screening can leave investors overly concentrated and lacking diversification in sector allocations that may be riskier than they seem.
3) ESG Integration
In ESG integration, the investor considers the environmental, social, and governance factors that we discussed earlier alongside more traditional financial factors with the goal of better identifying risks and opportunities. In other words, here investors don’t apply social or environmental values to investment decisions but rather consider whether ESG factors contribute to, or detract from, the financial prospect of a given investment opportunity. So ESG integration is more on the financial return end of the spectrum, with much less exclusion than the others.
An example is that a traditional investor who incorporates ESG information may consider investing in certain fossil fuel firms that perform best in E (Environmental) factors such as expected greenhouse gas emission reductions or that score well in G (Governance) factors like a diverse board.
Now to the pros and cons of ESG integration.
Pros
S&P data showed that more than half of the ESG-linked funds outperformed the S&P 500 in the first several months of 2021.
But what is an ESG-linked fund? Hard to know given the lack of regulation around these terms, which makes it hard for regular investors to engage.
Investments with strong ESG performance are far less likely to go bankrupt.
Cons
Investing in a “socially responsible” fund may include investing in corporations that may be unethical and benefit from environmental degradation (mining, logging, child labor, etc.). It’s important to make sure the fund’s core values line up with your own.
Fees can be slightly higher for ESG funds, which can eat into your earnings.
Ok, so we’ve gone over three different types of sustainable investment strategies. Let’s see how well you retained it.
Let’s say you don’t care so much about returns and are more focused on having a large impact that can be quantified.
Impact investing
Let’s say you want sustainability performance to be considered but still want to be open to as diverse an investment portfolio as possible.
ESG integration
Let’s say you want just the best-in-class performers to be part of your fund
Positive screen
What about if you want the worst performers excluded?
Negative screen
And investing based on sustainability trends?
Thematic investing
How big is the sustainable investing space and why is it becoming bigger?
Let’s break it down.
Scope of sustainable investing:
By the end of 2019, about $1 of every $3 under professional management in the United States was invested according to sustainable practices.
At the beginning of 2020, according to The Forum for Sustainable and Responsible Investment (U.S. SIF), U.S. assets under management that engaged in ESG investment strategies grew to $17.1 trillion, experiencing a 42% growth compared to the beginning of 2018.
Another recent report found money invested in various ESG investment vehicles would increase 275% by the end of the decade.
So what made the space for sustainable investing broaden and become a feasible investing strategy?
International agreements and documents are spurring sustainable investment strategies.
The Paris Climate Agreement, adopted in 2016, has encouraged more and more investors and asset managers to think about climate change impact.
The UN Principles for Responsible Investment (PRI) set out six principles that institutional investor signatories agree to follow. The first principle is “We will incorporate ESG issues into investment analysis and decision-making processes.”
In its Q4 2021 update, the PRI said it had 4,375 signatories, representing US$121 trillion of assets under management. That number continues to grow. In the update, it said that in the last quarter it had 218 global organizations as new signatories.
Also of note is the Glasgow Financial Alliance for Net Zero that started in April 2021. It brings together existing and new net-zero finance initiatives in one sector-wide coalition, and it provides a forum for leading financial institutions to accelerate the transition to a net-zero global economy. Its members currently include over 450 financial firms across 45 countries responsible for assets of over $130 trillion.
Moving away from international developments and talking generally, more studies are emerging, suggesting that investors don’t have to give up returns to work towards positive societal outcomes.
We can also thank the Millennials for spurring growth in sustainable investing.
According to a study from Fidelity Charitable, an independent public charity, 77% of affluent millennials have engaged in impact investing against just 30% of affluent baby boomers and older generations.
And as more wealth is transferred over time to millennials, that could mean even more money invested with sustainability in mind.
From a legislation standpoint, previous legislation created obstacles for sustainable funds to be included in workplace retirement plans, but the Biden administration has announced that it won’t enforce a previous ruling that largely excluded ESG funds from 401(k)s.
Legislative and regulatory activity could then be a further driver in the future.
To tie it all together, interest in and action across the spectrum of sustainable investing is increasing due to greater values-based decision-making made by all kinds of investors, spurred by changes in policy and public awareness.
What are the difficulties and downsides of incorporating more sustainable investing practices into personal investment strategies?
Jason Jay, director of the MIT Sloan Sustainability Initiative identifies three caveats to sustainable investing, including: 1) Misalignment in the investor community, 2) Outdated or inaccurate 'mental models', and 3) Inconsistent measurement.
1) Misalignment in the investor community
A key obstacle moving forward will be whether or not organizations/corporations will be willing to take more risk or less return to match the values of younger generations who are more concerned about social-environmental issues.
2) Outdated or inaccurate 'mental models'
Jay suggests his worry that many sustainable investors may have the wrong perception about the impact their investment may have. Common mental models include “anything I do as an investor affects anything a company does” and “If I want to make a better world, I should just sell bad stocks and buy good ones.”
In fact, a 2021 study from professors at University of Pennsylvania and Stanford University titled “The Impact of Impact Investing” found that ESG investors can have more impact by buying shares in “dirty” companies and then engaging with those companies’ managements to adopt ESG-friendly practices.
3) Inconsistent measurement
Lastly, Jay states that there is no quality, consistent data on how firms are doing on sustainability so that investment decisions can be made. These inconsistencies may occur due to different companies reporting this information in different ways, and with different levels of rigor.
The lack of data is also part of why we’re seeing ESG ratings from groups like MSCI and Sustainalytics vary widely. Research published by MIT Sloan School of Management found correlation among ESG ratings was 0.61 on average. By comparison, credit ratings from Moody’s and S&P are correlated at 0.99. So it’s certainly an impediment for investors when you’re trying to use these ratings to help you invest, and they are wildly different based on the provider.
Right now, the U.S. Securities and Exchange Commission (SEC) generally requires public companies to disclose ESG information if they deem it “material” to their financial condition, operating performance or to risks investors may face. That leaves a lot of wiggle room. There’s a lot of talk of the SEC soon requiring mandatory ESG disclosures. Many other countries require such disclosures.
Let’s talk other issues with measurement
There’s also a lack of third-party assurance for the information that is out there. 92 percent of S&P 500 companies published sustainability reports in 2020, while only 35 percent of reporting companies utilized external assurance (i.e., validation) for their sustainability disclosures. For those that do include assurance, it is often limited to one data point or a handful of data points, rather than all the data presented in the report.
There’s also a lack of quantitative data. According to one analysis conducted by Goldman Sachs, only 11.6 percent of disclosed E&S metrics constitute performance data. Furthermore, only one of the 25 most commonly disclosed pieces of ESG information—GHG emissions— is quantitative, and it’s 25th (the lowest) on the list of commonly disclosed metrics. It can be difficult to incorporate sustainability into investing when the main data disclosed is about policies and not performance.
How can individuals practice sustainable investing?
So maybe after hearing more about sustainable investing, you want to start integrating sustainable investments into your portfolio. If that’s the case, we’ve pulled together some helpful tips to help you make your next steps.
Morningstar has outlined 4 steps when starting to add sustainable investing to your portfolio
1) Discover what sustainable investing means to you.
With any financial planning, it’s important to establish goals at the outset. Maybe you have specific things you definitely want to avoid like coal or oil companies in your investments. Or, do you want to explore impact investing and seek to invest in companies that make a measurable, positive impact on the environment? These are questions you should start to ask yourself as you start to explore sustainable investing.
2) Understand what’s in your current portfolio.
It might be helpful to assess your current sustainability profile and how much of your profile may need to be reallocated. Do the holdings of funds in your portfolio align with your low-carbon objectives? Do you prefer funds that pursue ESG goals by design?
One great tool to do this is As You Sow’s Invest Your Values tool. You can enter in the ticker symbol of the mutual funds you’ve invested in or that make up your portfolio and then it shows you all the holdings in that mutual fund, its performance compared to some benchmark, and grades it on several environmental (fossil fuels; deforestation) and social (guns; prisons) criteria.
There are examples of funds being labeled as “fossil fuel-free” that this tool shows have fossil fuel holdings. You’ve got to check.
3) Know the sustainable options available to you.
So you’ve pinpointed your individual priorities and evaluated the sustainability of your portfolio, it’s time to start making changes.
Consider the options that we presented today--impact investments, Screening, and ESG Integration--and become more familiar with what values and returns each of these investment strategies represent. We’ll discuss options in just a minute.
4) Make a plan to transition your portfolio.
So now that you've become more familiar with your values, your current portfolio status, and what options are out there - it's time to start transitioning your portfolio.
Importantly, transitioning your investment portfolio is just one part of personal sustainable investing. You should also consider where you have your checking and savings account since your bank may use that money to make investments that don’t align with your sustainability values.
We’ll link in our intro notes to some lists of sustainable banks and credit unions (here and here). Bankforgood.org is one good resource.
Two that we can mention specifically are, the sponsor for today’s episode, Climate First Bank, as well as Amalgamated Bank.
Climate First Bank is the nation’s first climate-focused community bank. Since opening in June 2021, 43% of the loans that Climate First Bank has financed have been mission-aligned loans such as solar energy, LEED retrofitting and electric vehicle charging infrastructures. It also recently announced joining the Net-Zero Banking Alliance, an industry-led, UN-convened alliance of banks worldwide, committed to aligning their lending and investment portfolios with net-zero emissions by 2050 or sooner.
Amalgamated Bank calls itself America’s Socially Responsible Bank and is America’s largest B Corp certified bank. It’s a mission-driven, union-owned bank with branches in several large cities.
And these aren’t the only two mission-driven banks you can use for everyday banking. There’s many ways to find more.
One is to look at the 101 banks that as of this recording are part of the Net-Zero Banking Alliance and are from 40 countries totaling $67 trillion in assets, which is about 43% of global banking assets.
You can look at B Corporation’s website to find the many banks globally that have B Corp certification.
A third approach would be to look at the 275 signatories representing $72 trillion in assets of the UN’s Principles of Responsible Banking.
Yet another avenue is looking at the members of the Global Alliance for Banking on Values, which is a network of independent banks using finance to deliver sustainable economic, social, and environmental development.
Regardless of who you use, if you want to see that bank’s performance, bank.green is a good site to look it up.
As you take all these steps, note that you can try to do it yourself or you can work with a financial advisor or a managed fund. Of course the less you do yourself, the more likely there will be fees, which at a young age can start to add up given compounding interest, even at something like 1% of managed funds. Still, having someone or something help you can mean less stress, take less of your time, and help you see new opportunities. We hope that going through some more specific options helps jumpstart or enhance your sustainable investing no matter what approach you take.
Ok, so let’s talk potential options
First, maybe you want to find a financial adviser focused on ESG
There are several tools out there to help you find one.
The Certified Financial Planner Board of Standards, Inc. lets investors filter for “socially responsible investing” to find certified planners nationwide who offer these services.
Another option is the nonprofit Green America’s listing of financial-planning and investment consulting firms. Advisers listed here are certified members of Green America’s Green Business Network or are members of US SIF, a sustainable-investing trade group.
XY Planning Network, a member-based organization of fee-only advisers, has a find-an-adviser portal where you can enter SRI/ESG as a keyword search.
We found some financial advisor organizations that focus on sustainable investing including Tribe Impact Capital, EQ Investors, Nia Capital, and BlueSphere Wealth.
Once you find an advisor, make sure their disciplinary history is clean. You may also want to ask them how many clients they’ve helped create ESG-focused portfolios. You could also ask them their approach to ESG investing. Share with them how you want to approach it and make sure they can accommodate.
A lot of the big banks now offer sustainable investing assistance.
We found sustainable investing sites at Bank of America, CitiBank, JP Morgan, and Wells Fargo. So if you’re already with one of these bigger banks, they have programs and can advise you. If we didn’t list your bank, you could ask them what advising and services they offer in sustainable investing.
A note on the big banks. While they offer sustainable investing, they still use a lot of their capital to fund activities that accelerate climate change. Consider how one study found that in the five years after the Paris Climate Agreement was reached in 2016, the 60 largest banks globally invested $3.8 trillion in fossil fuels.
That being said, the big banks are starting to act. Many have large sustainable financing goals and portfolio emission reduction targets but these don’t necessarily mean less financing of fossil fuels and other activities that exacerbate climate change. In January 2022, Citi got some positive press for setting an absolute emissions reduction target, as opposed to an emissions intensity target. Sierra Club put out a press release applauding the move for “surpassing the low bar set so far by its peers” but also said it should commit to no investments that expand fossil fuel production.
If you want to be totally sure your money isn’t being used to invest in fossil fuels, best to not use the major banks.
Now let’s say you don’t want a human, active advisor (bad jokes). Then two options you have are robo-advisors that put together portfolios of various funds that you can buy into, and the other option is simply buy the funds yourself and make your own portfolio.
First let’s talk robo-advisors. Betterment offers several impact funds including a Climate Impact Portfolio, a Social Impact Portfolio, and a Broad Impact Portfolio. The goal with these funds is to allow for investors to have a socially responsible investment portfolio while still having a low-cost, diversified investment strategy with tax optimization.
Betterment is a popular robo-advisor, which means they use computer algorithms and advanced software to build and manage your investment portfolio rather than an individual human doing it. There’s less of a personal touch but on the plus side, the management fee is only 0.25% of invested assets.
There are also some that charge the management fee as a flat rate rather than a percentage. One example is Ellevest, which was built by women, for women. Its investment algorithm factors in important realities for women, such as pay gaps, career breaks, and longer average lifespans. Its plans range from $12 per year to $97 per year, and it has an “Ellevest Impact” investment portfolio.
Of course, you could also set up your own portfolio made up of funds as well as individual stocks.
When we talk about funds, we are typically referring to exchange traded funds (ETF) or mutual funds that are diversified and are meant to perform similarly or better than the stock market overall.
To simplify things, we’ll be using ETF and mutual fund interchangeably. In short, it means an asset made up of many individual stocks and bonds so you have diverse exposure.
There are many funds to choose from since at the end of 2020, the group of sustainable open-end funds and ETFs available to U.S. investors numbered 392, up 30% from 2019. So how do you find and choose from them?
Again, that Invest Your Values tool from As You Sow.
You could also review ratings from independent research firms such as Morningstar.
Nerd Wallet has a listing of ESG funds that are highly rated and low-cost (i.e., low expense ratio, which we’ll explain).
You could also seek out funds focused on specific issues.
For example, the Pax Ellevate Global Women’s Leadership Fund (PXWIX) invests in the highest-rated companies in the world for advancing women through gender-diverse boards, senior leadership teams and other policies and practices.
There’s also the Ecofin Global Water ETF (EBLU), a passively managed fund made up of companies it believes are positioned to benefit from the pursuit of solving the water supply/demand imbalance.
Let’s use Aspiration’s Redwood Fund (REDWX) as an example of a fund you could include in your portfolio and explore how it stacks up on key variables. A bit of background on the fund: “The Aspiration Redwood Fund looks at multiple ESG factors to find companies whose management understands that smart, long-term thinking is not only the right thing to do, but right for their bottom line.”
Minimum investment.
Only $10.
Fees.
There is the fee all owners of the funds pay and then there’s the management fee.
“Expense ratio” is the annual fee charged to fund investors. So if the expense ratio on a fund is 1% and you’ve invested $10,000 in the fund, you pay $100 a year. The expense ratios are lower for passively managed funds (i.e., there’s no one managing the fund to try to beat the stock market). The expense ratio for the Aspiration Redwood Fund is 0.5%.
Regarding the management fee, you decide how much to pay Aspiration. It could be zero. Up to you. And then of the amount that people choose to pay them, Aspiration gives 10% to charity.
Performance history.
Also nice is that the fund started in November 2015. So there’s a bit of a track record to look at. Some funds are so new that there isn’t much historical performance to consider.
Ratings.
We put REDWX into the As You Sow Tool and saw it had grades of A’s and B’s on its criteria.
Morningstar gives it three stars out of five for the fund’s historic performance relative to its peers.
Other than funds, you could also include in your portfolio the buying of individual stocks, although of course this is more risky.
If you’re going to invest in an individual stock, do your due diligence on, among other things, that company’s commitment to sustainability and its plans for the future.
You could also be guided by certain certifications like companies that are B Corporations or those that have a certain legal structure like public benefit corporations.
And it doesn’t have to be stocks of big companies. You could go all Shark Tank about it and invest in start-ups that have a sustainable angle.
There are platforms out there that allow you to find these start-ups.
One is WeFunder, which allows you to invest as little as $100 and you can filter on their site to just see the public benefit corporations and B Corporations.
Another is Republic. It has several “impact” filters including eco, social, and minority founders. The companies set their minimum investment amount. We saw one for as low as $50.
Rather than some fancy silicon start-up, you could also provide loans to people running businesses in underserved communities through platforms like Kiva.
Importantly, if you’re going to invest in a start-up, it’s important to know whether you’re an “accredited investor.” Accredited investors made $200,000 in income the last two years and will do so again this year or have a net worth over $1 million. Most people are not those things (including us!). The good news is that Congress changed the law so now non-accredited investors can be included in crowdfunding of start-ups. These websites make clear which offerings non-accredited investors can participate in and help them follow the complicated formula for the maximum they can invest.
Regardless of how you invest, explore options to vote on shareholder resolutions. Shareholder activism is increasingly becoming a way to push companies toward more aggressive activity on sustainability.
For example, Sysco, a global foodservice leader, had no company-wide greenhouse gas emissions reduction goals. In November 2021, 92% of Sysco shareholders voted in favor of a resolution asking Sysco for Paris aligned, net-zero targets, an aligned climate transition plan, and annual reporting of progress.
Unfortunately, individual investors tend not to vote on shareholder resolutions. One recent analysis found individual investors’ votes only represented 28% of their total shares. Also, those managing index funds like BlackRock and Vanguard have failed to vote for environmental resolutions in the past. But, the good news is that they are starting to get more active. Collectively, more asset managers voting has resulted in the average vote of support on climate-related proposals leaping to 41% of shares voted in 2021 from 31% the year before.
And of course, sustainable investing is just helping you use your money to advance sustainability. Regardless of whether you currently have funds to invest, it’s important to remember there’s still a lot that can be done, arguably with bigger impact, outside of investing such as advocating for policy changes, talking with others about sustainability issues, making changes in your personal behavior to reduce your impact, etc.
How can you learn more about sustainable investing?
You could get your Fundamentals of Sustainability Accounting (FSA) certification. It’s offered by the Value Reporting Foundation. It helps you to understand the sustainability accounting standards board (SASB) standards that identify the ESG issues most relevant to the financial performance of 77 industries, as well as understand more generally the link between financially material sustainability information and a company’s ability to drive enterprise value. Scott has the Level I certification and hopes to get/pass Level II in 2022 so that he has the full credential.
Hat tip to FSA here as some of the information in these intro notes came from the Level I study guide.
Take an online course or join support groups
The non-profit Invest for Better gives women the confidence, skills, and encouragement they need to take control of their assets and use them to influence things they care about. One way it does that is with its Invest for Better Circles, which are small, peer-to-peer learning and activation groups.
There are so many guides out there now! We linked to many of them within our intro notes since we looked over a bunch to inform this episode. So google around for those or go to this episode’s page on our website, sustainabilitydefined.com to see the links.
How have Sustainability Defined, and Scott and Jay, practiced sustainable investing?
First let’s talk about the podcast
We get revenue from sponsorships. We use that money to pay our employees like Amelia and Keaton. We (Scott and Jay) haven’t paid ourselves since we started this (except for some zoom dinners we did with us and our significant others). But over time we’ve accumulated enough money in our business bank account that we decided it’s time we should invest it.
We have a business account with Chase. We did this because they have branches near us where we live in Denver and DC. However, we are looking into moving our money into a more mission-driven bank.
So here’s our savings and investment plan:
We plan to keep enough in savings such that even if we don’t find any suitable sponsors for a full year, we could continue to pay our employees and other expenses.
Most of our money will be invested in a diverse array of index funds with low expense ratios. We plan to invest the money on our own to avoid a management fee. We plan to slowly invest in equal installments every month until we’ve hit our target investment amount. Here’s our planned breakdown where we looked for funds that had low expense ratios and avoided D’s and F’s on As You Sow’s tool.
Large blend (50%)
DSI (iShares MSCI KLD 400 Social ETF)
ESGV (Vanguard ESG US Stock ETF)
SUSA (iShares MSCI USA ESG Select ETF)
Foreign large blend (25%)
VSGX (Vanguard ESG International Stock ETF)
Foreign developed stocks (15%)
ESGD (iShares ESG Aware MSCI EAFE ETF)
Diversified emerging markets (10%)
ESGE (iShares ESG Aware MSCI EM ETF)
We plan to take at least $1,000 and invest it in individual company stocks that align with the values of the podcast and are trying to advance sustainability.
We plan to take at least $1,000 and invest it in early stage companies.
Definers, let us know your thoughts!
Tell us if you disagree with our index fund investment approach.
Tell us if you think there are individual sustainability-minded stocks we should invest in
Tell us if you know of early stage companies that could take an investment from us and have advancing sustainability as part of their mission.
Even better, we’d love to invest in the companies of our listeners since we don’t have a show or money to invest if not for you.
We plan to do an update episode at some point like a year from now and tell you about our experience and how our various investments performed.
Jay
Real Estate
Solar Panels
Scott
I haven’t done the greatest job historically in investing with sustainability in mind. I’ve had a Roth IRA for many years. Note that anyone at any age can contribute a Roth IRA; they just need to have earned income. The main advantage of a Roth IRA is that qualified distributions at retirement are not taxed (i.e., the growth is not taxed). I left it up to our family’s financial advisor to manage my Roth at a 1% fee at the allocation he recommended. I didn’t specify I wanted it done with sustainability in mind. I’m now in the process of taking over the money so I don’t pay that 1% fee and investing it with sustainability in mind.
I actually have one of my two Roth IRA accounts at Wealthfront because I had signed up with some promotions and such making it so I had a decent chunk of money managed with no fee. Wealthfront just came out with some socially responsible investing options. I clicked edit portfolio, then clicked manage with socially responsible investing, confirmed my risk level, and then boom, it was reallocated. I could have modified from there or gone with their default. And I’ve learned with Wealthfront and others that for certain asset classes like municipal bonds, foreign developed, and emerging market stocks, there is no good ESG alternative so often they stick with the usual funds to include exposure to those asset classes in the portfolio.
I also could have done better at setting up automatic payments to sustainability investments once I got a job where I was paid enough that I wanted to save more than the tax advantaged options allow (for example, the Roth IRA contribution limit for most individuals was $6,000 in 2021). I’m now in the process of making sure a certain percent of each paycheck goes right into my chosen investments.
I’ve learned that with these sort of long-term investments in diversified funds, you don’t need to try to play the game of investing when the market is at what you think is a low point. There’s no way to know and the point is that over time, your investment will likely grow.
Rather than using a robo-advisor, I set up my own fund and used Chase’s investment tool to buy the funds. Most of the big banks have copied Robin Hood and others in not charging fees on trades so it’s possible with your existing bank you can set up a self-directed investment account without having to open a new account with another company.
I looked for funds with a low expense ratio, decent to good historical performance, and decent to good grades on As You Sow’s tool. I also tried to get a variety of fund categories. When I filtered on Chase’s find funds tool for “socially responsible investments” and “low fees” (i.e., less than 0.5% expense ratio), it went from 2,515 options to 129. So that’s one of the tradeoffs to sustainable investing–less options.
I probably would have been less comfortable doing this if I didn’t have a brother who is a wealth advisor to call for advice as needed.
With my checking/savings account, I admittedly like Chase but should probably explore more local options that are mission-driven.
More about our Expert guest: Ken laRoe
Ken LaRoe, President and CEO, Chairman of the Board, and Founder
Ken is a serial values-based bank entrepreneur having founded, operated as Chairman and CEO, and successfully exited two community banks in Central Florida. The second of those community banks, First Green Bank, was the first bank in the United States with a stated environmental mission. He is building on the legacy of First Green Bank by starting Climate First Bank.