Socially Responsible Investing
Session 2 in the Wealth Circle is where we really dive into the nitty-gritty of investing: how it works, why it works, and how exactly to do it.
One of the first questions women ask us during the session isn’t about how to maximize their returns or how to ensure they’ll have an amazing legacy to leave.
It’s: What about Socially Responsible Investing?
While we appreciate the intent behind this question, which is basically trying to ensure that investments are aligned with values, we take issue with it.
Why are we against this idea? For a few reasons:
Firstly because...do you think men ask about Socially Responsible investment options when learning about the stock market?
Hell no! They’re ready to jump in feet first and start making their money work for them.
Why do women feel the need to immediately make sure other people are taken care of first before they start to reap the benefits?
It’s because we carry so much more baggage around money. We never want to seem “greedy,” or “materialistic” or “selfish.” And we’re putting all those words in quotes, by the way, because wanting to be wealthy and to have a lot of money doesn’t make you any of those things.
Enter Socially Responsible Investing. It’s what makes us feel better about the weird guilt we can’t shake when it comes to making money.
We need to deal with that guilt, first of all, by digging deep, changing our money mindset, and owning our wealth potential, unapologetically.
After we do that, we can look more clearly at Socially Responsible Investing and see 3 clear issues with it:
It’s Indirect
Socially Responsible Investing, sometimes called Impact Investing or Environmental, Social, and Governance (ESG) Investing, is defined as “any investment strategy which seeks to consider both financial return and social/environmental good to bring about social change regarded as positive.”
In the context of the stock market, that means choosing funds or individual stocks of companies who claim to be working towards a higher purpose. It’s great to find those companies and support them in your own way—by volunteering, actually working for them, or spreading the word about their work.
But investing in them is probably the most roundabout way to support their cause. Your money gets filtered through so many avenues before it even reaches the company itself, and there’s no way to measure your impact. It’s kind of like donating to Susan G. Komen to support breast cancer when instead, you could make a direct donation to your local cancer ward.
It’s Costly
Many ESG funds have higher fees than non-ESG ones. Why? Most ESG funds are pretty small, so they don’t get the same proportionate cost savings that you see in funds with a ton of assets. Also, funds with an ESG mandate usually carry extra costs in order to pay for shareholder advocacy and similar activities that aim to move companies in a positive direction. We cover how important fees are in Session 2 of the Wealth Circle because they can sneakily steal a huge portion of your wealth over time.
Also...let’s be real. ESGs are hot. They seem trendy and great. People who create and manage those funds know they can charge you a little extra for it...so why wouldn’t they?
It’s…Kind of Bullshit
Funds that claim to be Socially Responsible look at some pretty subjective and gray-area criteria when defining exactly what those investments are. Some of the most common categories these companies are selected by include:
Gender Equality Score
How well companies treat their people
Sustainability
All of that sounds great on the surface. But when you think about these criteria for one second longer, you start to realize that they’re all incredibly fluid and holistic metrics. How does one measure the quality with which a company treats its people? Or how sustainable its practices are? Reformation claims to be the most sustainable clothing option besides going naked, and as quippy, as that tagline is, it’s been proven that it’s just not true.
Bottom Line: Focus on Your Own Returns and Pledge to Use Them for Good
Why pay extra fees upfront for a form of investing that’s not really proven to do what it’s supposed to? Why pick funds that don’t perform as well just because they’re labeled in a way that assuages our own guilt? As women, we need to shake off the guilt that’s always in the back of our minds and focus on one thing: our returns.
We’re not saying all ESG funds are bad. We’re not saying that considering the impact of your investments is bad, either. That’s what makes women so amazing: we’re compassionate, thoughtful people who want to bring everyone else with us as we make money. We can still do that! We will do that. But on our own terms, with clear insight as to where our money is going and what it’s doing.
That, friends, is how you make a HUGE Environmental, Social, and Governance impact: by becoming wealthy and paying it forward, in exactly the way you want to.
Keep Learning With Us
Get even more insights with our weekly podcast, Coffee & Coin, hosted by our Founder & CEO, Allegra Moet Brantly.
Ready to take your financial life to the next level? The Wealth Circle is our live online course and community dedicated to helping women invest confidently and reach financial freedom.