There is a growing discussion on how to incorporate ESG (Environmental, Social, and Governance) criteria as a part of a prudent investment process. 

Investors are increasingly aware of how climate change, extraction and depletion of natural resources, pollution, disposal of hazardous & non-hazardous waste, as well as many more environmental challenges may impact their future.

The impact of labor practices, product safety, data privacy and security, compensation policies, community involvement, and mega-company domination of some sectors all around the globe have consequences for the social well-being of all people and nations.

Both public and private companies have board members and senior leadership that will become more accountable for how they choose to incorporate business practices into their core governance profile that are both good for their shareholders and good for society.


The challenge for individual investors and their advisors is to separate the promising dialogue about ESG initiatives offered by individual companies and by investment companies (i.e. mutual fund companies) from actual, measurable, quantifiable business practices.  As of yet, there are no universal standards for defining ESG criteria and measuring progress against those goals.  Consequently, it is not yet possible to create reports that can be used to enforce accountability.

It is quite clear that many different organizations are hard at work on creating a set of ESG standards. These voluntary ESG disclosure efforts include the Sustainability Accounting Standards Board, the Global Reporting Initiative, the Carbon Disclosure Project, and the UN Global Compact.  Each has articulated a different set of needs and principals around which they propose to establish reporting standards.

We believe these are worthy efforts that will evolve into meaningful ESG measurement criteria in the years ahead.  In the meantime, individual investment companies are creating strategies and products that seek to embrace ESG attributes as a core part of their investment strategy.  Due to  the lack of standards, they have turned to individual, proprietary definitions and screening parameters in order to build portfolios that they believe best represent their stated ESG goal.

A simple web search of the term “ESG Rating” yields dozens of results, leading us to the conclusion that many methodologies for selecting ESG funds exist today.


We believe it is important to offer clients both information and options on ways they can participate in ESG investing in their portfolios. 

This requires us to invest time in our due diligence research efforts to identify mutual fund companies that have a stated focus in providing mutual fund products that have ESG attributes.

In addition to ESG attributes, we believe any investment option that we recommend for inclusion in a client portfolio should also be screened using fundamental and standardized financial measurement metrics.

We use both Morningstar and FI360 mutual fund reporting and analysis software in our normal screening process.   Funds are reviewed using our fundamental financial metrics and added parameters for ESG funds.  For ESG funds, we identify candidate funds from a combination of Morningstar’s “sustainable” funds and Schwab’s list of “ESG funds.”  We have chosen to use an independent third party ESG screening tool from As You Sow, a non-profit organization committed to promoting environmental and social corporate responsibility.  We utilize to get some perspective on how the fund is performing against several ESG screens defined and assessed by the organization.

This process has resulted in the addition of a few equity mutual funds to our list of investment options that have a stated ESG investment style.  While we believe our current processes for screening and selecting ESG investment options for inclusion in client portfolios is robust, we also believe it is difficult to offer investments that are guaranteed to meet an individual client’s specific ESG objective.  Rather, we believe, the investment companies that create the ESG investment products that pass our screening process are sincerely dedicated to following their proprietary ESG investment processes and improving on them over time.  

Thus, our clients now have options for including some ESG funds in their portfolio.  We fully expect the options to expand over time as standards emerge and screening tools become more sophisticated.   For now, we can merely guide our clients to help  embrace the spirit of ESG investing.


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