The advisor who wants to stress investing for good but doesn’t have a rigorous fund selection process can look “like an idiot,” says an ESG advocate.
ESG, or investing with a focus on environmental, social and corporate governance issues, is a sector populated by funds that call themselves ESG, but really are not, says Jeffrey L. Gitterman, the founder of Gitterman Wealth Management.
Yet ESG investing can be part of a movement toward a more independent financial advisory industry that shakes up corporate America, he says.
“There’s a lot of confusion about ESG in the advisor space—about what it actually is,” Gitterman says. “There’s a lot of ESG labels that are being slapped on funds that really are not (ESG) in our opinion.”
Sustainable, impact/ESG investing is not the same as socially conscious investing sayd Gitterman, who created Gitterman’s SMART (Sustainability Metrics Applied to Risk Tolerance) Investing Services.
“We describe it as the GPS of investing. Before GPS, you might take a road trip with a map and it had a lot of failed data about the trip you were about to take. You got surprised by road closures and traffic and all these other things. But today you use the GPS because it is going to give you live data about the trip you are going to take. In a way that is how we use our GPS.”
Gitterman describes sustainable, impact and ESG investing as “another data set” than socially conscious investing. Some socially conscious models are processing billions of pieces of information on companies, but they are not employing active management in making selections, he says.
“Without an active manager, someone who has a thesis on how he is going to utilize data in his stock or bond selection process, we are suspect that data is useful and whether it is material or not,” he says.
ESG means scoring and evaluating each company in a consistent manner. “You must use various, social, governmental and environmental metrics in the sectors that are appropriate for them,” he says.
Gitterman believes that the purpose of his company and the ESG movement is “to be very purposeful about wanting to use investor capital in order to change corporate behavior.” People at odds with certain corporate policies “can start driving corporate behavior if they use investor capital to do it,” he contends.