Investing with Sustainable and Responsible Objectives
Our Approach to Sustainable Investing
Given the growing concern about climate change and its impact on the environment and the well-being of future generations, many of our clients have expressed interest in further aligning their personal environmental values with their portfolio structures, as long as the integrity of the investment process can be preserved without sacrificing the potential for desirable long-term performance.
Historically, Socially Responsible Investing (SRI) has meant many things to many people and, as a result, has been difficult to define and measure, at least from an investment perspective. While the “Socially Responsible” part of the SRI equation might have made a positive impact on corporate behavior, the “Investing” part of the equation generally failed to deliver satisfactory returns to investors due to poor manager performance and excessive fund expenses. More recently, however, increased competition has led to lower expenses and more favorable returns to the point where evidence supports our belief that one need not sacrifice performance while satisfying personal values.
One of our clients suggested that he did not want to be “charitable with his investments,” in other words, he did not want to sacrifice long-term performance in exchange for achieving charitable objectives. We wholeheartedly agree with this view and believe that the most effective way to satisfy one’s charitable intent is by donating directly to worthy causes, including making grants through tax-advantaged donor advised funds.
In seeking to achieve desirable risk-adjusted performance over the long term, our Sustainability Investment strategy is based upon academically sound principles of investing, including three factors which are drivers of portfolio performance, i.e., securities with smaller market caps, lower relative prices, and higher profitability. Combining these factors with a fourth measurable factor, Sustainability, has the potential to further improve risk-adjusted performance while at the same time making a meaningful positive impact on the environment.
Consistent with the name Aequitas, the Latin word for fair dealing, we believe that financial success can be achieved more effectively by investing in companies that embrace fair dealing with the environment and the society in which we live. For these reasons, we are committed to Sustainable Investing as an important enhancement to our investment process, thereby making the achievement of our clients’ long-term financial goals more sustainable as well.