QUESTION: What advice do you give clients who want to change their portfolios to invest in sustainable companies?
ANSWER: First I tell them that I define sustainable investing as an approach that aims to generate market-rate returns while demonstrating positive environmental and/or social impact. And that the asset allocation is pretty much the same as any other portfolio.
But I use funds that have managers that demonstrate positive environmental/social impact.
These are not hippie funds. These are mainstream funds (created and managed by the largest money management firms in the world) that are willing to work with me to have overlays (parameters clients choose to reflect their values). Companies within the funds are well known, like Apple, Adobe Systems, Aflac, CBRE, Costco, Johnson & Johnson, Home Depot, Whole Foods Market. The funds would likely not have companies that destroy the environment, employ child labor or discriminate against women.
Q: How is “Whole Foods-like” asset allocation a better investment?
A: An investment portfolio is basically a “basket” of stocks and bonds. And you shop for these companies (or managers of companies) to put into your portfolio (or basket), just like you would shop for food.
So what I am doing with my clients is kind of like shopping at Whole Foods. And because the products (in this case, investments) align with my clients’ values, they are comfortable with the investments. And because most people who have a value system that is geared for sustainability are looking at the long term, they are investing for the long term, not day trading.
Q: How do you work with portfolio managers?
A: Our company has a very good research team that identifies good managers. So I start with a select group of managers, let’s say about 100. I read the reports on performance and philosophy of the managers and the team, then narrow it down to about 30. The next step is to have meetings with the sales representatives of each company to get more information.
The final step is to meet or conference-call the actual money manager with a slew of questions regarding what I believe to be critical for sustainability. As the relationships get closer, I am sometimes able to get the manager to have more overlays that are customized to my clients’ values.
Q: What concerns do you get from your clients about this idea?
A: Mostly none. They get it, because they are doing everything else in their lives according to their values — like getting solar, driving hybrid or electric cars, buying organic foods, eating at locally sourced restaurants, using nature-based (not chemical-based) cosmetics, wearing natural fabrics, etc.
There are a few who ask about performance, say 1 in 10, but since I have already told them about the aim to generate market returns, it is an easy conversation.
Q: Are there matching returns on sustainable investments compared to regular investments?
A: Like any other investment, it varies. My job is to find the funds that can track the benchmark or market returns, like any other fund, and at the same time be sustainable. There are funds that meet these criteria, and there are some that don’t. That is why I am vigilant about keeping track of all the funds I work with.
I have a quarterly review of the funds. If they do not meet either the sustainability or market criteria, I would find out why and either stay with the strategy if the logic is sound, or I would switch to another fund that meets both sustainable and market return criteria.
PROFILE
Eliot Bu
>> Title: Financial adviser
>> Firm: Morgan Stanley
>> Age: 47
>> Education: Master’s degree, Columbia University, New York
>> Website: www.morganstanleyfa.com/eliot.bu
>> Email: eliot.bu@morganstanley.com
