Investing with conscience to make a difference
Wells Fargo Investment Institute’s “Vision Investing” report discusses values-aligned, impact, and ESG investing trends — and our company’s commitment to sustainability.
The world is changing, and investors are changing along with it.
More than half of investors are interested in sustainable investing, and sustainable investments have grown 30-fold since 2010.
These findings are from a recent Wells Fargo Investment Institute (WFII) report: Vision Investing: Values, Impact, and ESG (PDF). The report aims to educate clients, financial advisors, and investors about market trends around sustainable investing and to communicate our commitment as a company to managing these issues.
Three types of sustainable investing
With so much focus today on sustainable investing, Dan Wanstreet, director of ESG Strategy for WFII, said the report introduces a new umbrella term coined by Wells Fargo — Vision Investing — that unites three investment pillars:
- Values-aligned investing – Investments that avoid industries and companies that are not in alignment with an investor’s personal or religious values.
- Examples: Portfolios that exclude tobacco, firearms, or fossil fuels
- Impact investing – Investments for clients seeking to change the world by generating an identifiable and measurable impact in addition to a financial return.
- Examples: Investments in solar panels and affordable housing
- ESG integration – Investments that look at environmental, social, and governance risks and seek to influence both financial performance and society at large.
- Examples: Investments that factor in a company’s risks related to carbon emissions or waste management (environmental), working conditions or data security (social), and lawsuits or political contributions (governance)
“Just over the past two years, we’ve experienced the demand from clients who want their personal values integrated into their portfolio,” Wanstreet said. “Vision Investing gives clients an extra layer — on top of everything we already do for them from an investment standpoint — where they can integrate the things important to them from a values standpoint.”
And vision investors aren’t giving up profits as they try to change the world. “Historically, there’s no evidence you have to sacrifice performance with Vision Investing,” Wanstreet said.
Investment style leaps from fad status to mainstream
According to head of WFII’s Social Impact Investing Lloyd Kurtz, this type of investment used to be a niche in the investment industry, considered by some to be a “bull market fad.” But it has grown rapidly, and, according to a recent report from Bloomberg Intelligence, it could account for as much as one third of global assets under management by 2025. An uptick in interest in the latter half of the 2000s accelerated with the financial crisis and subsequent slow economic recovery, Kurtz said. “There was greater and greater interest in impact investing because there were a lot of people that needed help, and capital markets were viewed as a good way to try and help them.”
“There was greater and greater interest in impact investing because there were a lot of people that needed help, and capital markets were viewed as a good way to try and help them.” — Lloyd Kurtz, head of Social Impact Investing for WFII
There’s been a growing interest in Vision Investing among all types of investors, with younger investors particularly interested in investing with their values, according to Wanstreet and Kurtz. “Millennials as young adults and late teens experienced the financial crisis, so their lived experience has given them a good picture of systemic risk. And when they’re investing, they’re thinking about systemic risk in a way that prior generations maybe did not,” Kurtz said. We believe this trend may grow as more Gen Z’ers become old enough to invest.
Information has also gotten easier to access and understand. “Ten years ago, it was really difficult to know what a company’s carbon footprint was. The data didn’t exist that we could even judge it or compare it,” Wanstreet said.
Organizations today are more prominently highlighting their ESG performance because stakeholders are focused on these issues, according to Robyn Luhning, Wells Fargo’s chief sustainability officer.
As a company, Wells Fargo is committed to our ESG and climate goals while being transparent about our ESG performance. “All of that is about helping our customers, our communities, our society be more successful and sustainable,” Luhning said.
Investment and Insurance Products Are:
▸ Not Insured by the FDIC or any Federal Government Agency
▸ Not a Deposit or Other Obligation of, or Guaranteed by, the Bank or any Bank Affiliate
▸ Subject to Investment Risks, Including Possible Loss of the Principal Amount Invested
‘Sustainable’ or ‘Social Impact’ investing focuses on companies that demonstrate adherence to environmental, social and corporate governance (ESG) principles, among other values. There is no assurance that social impact investing can be an effective strategy under all market conditions or that a strategy’s holdings will exhibit positive or favorable ESG characteristics. Different investment styles tend to shift in and out of favor. In addition, an investment’s social policy could cause it to forgo opportunities to gain exposure to certain industries, companies, sectors or regions of the economy which could cause it to underperform similar portfolios that do not have a social policy. Risks associated with investing in ESG-related strategies can also include a lack of consistency in approach and a lack of transparency in manager methodologies. In addition, some ESG investments may be dependent on government tax incentives and subsidies and on political support for certain environmental technologies and companies. The ESG sector also may have challenges such as a limited number of issuers and liquidity in the market, including a robust secondary market. There are many factors to consider when choosing an investment portfolio and ESG data is only one component to potentially consider. Investors should not place undue reliance on ESG principles when selecting an investment.