Embedding Sustainability Into Your Company Is Good Business

By Rebecca Hu

‍

Merging profitability with the best interests of workers, shareholders, and communities leads to better business outcomes and better overall outcomes for all of these stakeholders. This is the foundational philosophy on which we built our sustainability model and how we build sustainable portfolios. It’s also how we run our company.

Looking forward, we believe that sustainability will be embedded into organizations out of necessity in much the same way that companies have evolved to embrace other roles and ideas. For example, the role of chief technology officer (CTO) didn’t exist until the 1980s, when tech became a fundamental part of developing products and services. Now, most companies have a CTO for the simple reason that tech is embedded into every facet of every company. Similarly, diversity, equity, and inclusion (DEI) programs and diversity and inclusion officers were not commonplace in companies until roughly a decade ago, when it became apparent that diversity impacted employee retention as well as the bottom line. 

A more recent example is that, in 2022, CEOs placed environmental sustainability in their top 10 business priorities as a response to pressure from key stakeholders (such as investors) to focus more on this area. Companies are adding chief sustainability officers (CSOs) to their teams. In Ethic’s case, we built an entire sustainability team to help guide the transition to more sustainable investment.

Individuals are also increasingly concerned about sustainability issues, and this concern needs to be reflected in the relationship between wealth advisors and their clients. Traditionally, conversations focused on financial planning and retirement, but now increasingly include impact goals and investors’ visions for the future. Given this shift in perspective and priorities for investors, it is incumbent upon wealth advisors to expand the conversation from strictly financial goal-driven to include impact goals. 

At this point, discussing what we mean by sustainability is helpful. For us, sustainability is about building a world that values environmental resilience and social equity. It’s important to note that individuals or groups can care about the same issue for different reasons. For instance, one person may want to protect water systems because they are concerned about climate change; another because they are concerned about fishing. Our goal is to create a model where sustainability is aligned with a shared vision for the world while accounting for different values and priorities.

‍

How We Built Our Sustainable Investing Model 

The financial industry has built out an extensive suite of metrics to assess a company’s investment profile, most of which revolve around size, value, and risk. We believe more information is needed to build an accurate profile and we’ve created a comprehensive way of assessing companies that encompasses a suite of language and quantitative metrics. It’s a research- and data-driven model that looks at internal and external corporate behaviors and policies and how they impact a specific issue and communities. 

For example, air pollution disproportionately affects low-income populations and communities of color. So, if a client cares about racial equity, we can present a set of data variables on racial equity from different companies and around different issues, including air pollution. The beauty of the model is that it supports a presentation at a high level (say, in a 10-minute meeting with a client) as well as a more rigorous analysis.

We designed our sustainability approach and advocate its use by wealth advisors because it’s aligned with how the world works. But to execute the approach, skills that aren’t traditionally in finance are also needed. Building a team with diverse backgrounds and experiences and creating interdisciplinary roles produces the most up-to-date, accurate view of impact. This model is necessary and effective because we believe that the world of finance is plagued by quantitative bias.

In addition to having a diverse team, we operate in a culture of collaboration, which encourages diversity of thought and challenging the status quo when necessary. The combination helps us contextualize data and draw nuanced conclusions.

‍

Benefits of Building Sustainability into Your Business

In addition to building a team with diverse experiences not traditionally found in finance, wealth advisors who want to build sustainability into their business need to understand that it’s not an add-on. Sustainability must be embedded into every aspect of the business. This means caring about sustainable business practices within the wealth advisory and creating policies and procedures that promote and support that sustainability. Advisors who doubt the importance of this need only look to research over recent years showing that millennials and Gen Zers deeply value working for companies that care about sustainability — in some cases rating it over their income. So any organization that wants to attract and retain workers must have sustainability at its core.

Sustainability is also a client retention issue. Investors who care about the impact of the companies they invest in naturally want to work with advisors who don’t only talk the talk but walk the walk. In fact, we’ve seen clients leave their advisory firms in favor of another they deem to be more proactive on sustainability issues.  

Given this increasing interest from investors in incorporating personal values into investment decisions, embedding sustainability into advisory practices and offering products that reflect those values will strengthen the client relationship. But that’s just the beginning. It can also create a community. 

Take Ellevest, which built a business and an impassioned community around investing in women and positively affecting racial justice. Or Beacon Pointe, which used data from Ethic’s Values Mapping Exercise (VME) and platform to propose a customized equity portfolio for each client that aligned with their values across our 19 Sustainability Pillars — a holistic system designed to reflect the complex issues affecting our world. 

When people are motivated by a shared goal, they produce creative solutions. Needless to say, the relationship wealth advisors at Ellevest and Beacon Pointe have with their clients is far different from the typical relationship wealth advisors have with their clients. Rather than defining success solely by looking at the financials, the goal is to ensure that investments are also in line with values.

Now is the time for advisors to shift the conversation to learn and understand the issues their clients care about — and then be proactive about creating portfolios that meet their financial and philosophical needs. Sustainability shouldn’t simply be a product; it should be part of the fiber of the advisory.

The bottom line is that for wealth advisors who want to attract and retain employees and clients, sustainability is no longer a nice-to-have — it’s a must.

‍

‍

‍