As the discussion with the client progressed, Shane Delavan started mentally checking boxes:
- Passionate about the environment? Yes.
- Knowledge of the green energy industry? Advanced.
- Interest in a portfolio that reflected her values? Strong.
Yet, as Delavan, an investment team manager with BOK Financial® Private Wealth, started to explain how a values-based investing approach could align the client's deep personal convictions with her investment and retirement accounts, she was stunned.
"She and her husband believe very, very strongly in green energy, but they weren't even aware that you could craft an investment strategy that would reflect that," Delavan said.
Seemingly, Delavan's client is not alone. According to a recent NerdWallet survey, 69% of investors polled are interested in socially responsible investing strategies, yet only 23% have portfolios that align with their values.
Amid the current market turbulence, Carrie Clasen Porter, director of strategic initiatives with BOK Financial Wealth Management, could see that disconnect linger.
"With increased volatility and inflation at the forefront of investors' thoughts, incorporating one's values into their portfolio becomes a secondary discussion," Clasen Porter said. "Their values are still important, but investors tend to prioritize meeting their financial objectives first and foremost."
A growing array of investment options
To lead with values on investment decisions, individuals may consider broader environmental, social and governance (ESG) strategies, which emphasize key measurements in addition to core financial returns. Alternatively, they may focus on themes such as human rights, corporate diversity or renewable energy, or intentionally avoid investments in companies that profit from warfare or are tied to industries such as tobacco, alcohol and gambling.
Generally lumped together as socially responsible investments, the approach has become increasingly popular in recent years, as evidenced by the year-over-year 36% increase in sustainable mutual funds and exchange-traded funds in 2021.
Yet, through the first four months of 2022, high-growth technology stocks, which are frequently core ESG positions, largely suffered considerable losses while the energy and materials sectors benefited from soaring commodity prices. Meanwhile, suspicions around greenwashing, or the misrepresentation of companies' true sustainability and impact, continued to lurk.
"That aspect of not knowing if a company's efforts are more of a marketing position or if there really is something to them has definitely put a mark on the space," Clasen Porter said.
To combat greenwashing skepticism, Clasen Porter said additional regulation is expected, both on corporations and investment companies, which may lead to more appeal among purpose-driven investors if they are consistently able to provide reliable data. She added that while data benchmarks are increasingly common in the social and governance spheres, they've proven challenging in the environmental space.
"For the industry to improve, we must have relevant data—whether that takes the form of company-provided information from an ESG or corporate social responsibility report, or data provided by investment firms," she said.
Logistical hurdles shrinking
In addition to potential data-driven boosts, Clasen Porter said improved communications could bolster investors' efforts to carry their values through their portfolio.
"Investors may be interested, but they're not bringing it forward to have the conversations around what's important and what they want reflected in their investments," she said. "Values vary by individual, so some may not be interested in the broad-based approach of ESG."
Clasen Porter said that improvements in technology are helping provide more targeted investment options and added that decreasing minimum account levels could further facilitate values-driven choices.
"Barriers are definitely being lowered to enable a greater range of clients to actually commit to this and do it in a way that makes them feel like they're putting a stamp on their portfolio," Delavan said.