Episode 92: The Time Is Now

Transcript

Hello and welcome to the balanced wealth podcast. My name is Gavin DiStasi.

Well it happened. The unthinkable, right? And I’ll be honest, I really didn’t see it coming. Oh I know that all the polls said it was a close race, but I simply didn’t believe America would voluntarily go back and elect that man again. I even promised Jarrett it wouldn’t happen. Told him not to worry, my faith in the democratic process, and basic humanity unshakeable. We’ll I was wrong. Again. That’s twice now if you’re keeping score, and Jarrett definitely is. And for a couple of days afterwards, I was definitely in a funk, which isn’t normal for me, the optimist that I am.

But I’m out of that now and while we most certainly have some dark days ahead, and if the early returns are any indication, it’s gonna be a spectacle for the next four years at the very least, the fact is that I remain a believer in the grand pendulum of justice, and that things will swing back the other direction in due time. Perhaps it’s because of the lessons my late mother taught me, as she too was a believer. No matter how angry or dispirited she got over a particular election result (the night Ronald Reagan was elected is a particularly vivid memory of my childhood), she was adamant about the importance of participating in the democratic process. And it was her passionate belief that if you didn’t participate, you had absolutely no right to complain about how things turned out.

Well I voted, and though I was not out there knocking on doors in Wisconsin, I believe that I did, in fact, participate in the process. It simply didn’t go the way I hoped. So, I’ll complain if I want to. But as most of you know, we try not to use this platform to push our political views on our audience except in some extreme circumstances, so I’ll leave it at that for now. But what I do think is important is to discuss how this all affects the job we do here, and specifically, today I want to talk about how it relates to an investing philosophy that we are passionate about here – socially responsible investing, or SRI.

Also known as socially conscious investing or impact investing, whatever moniker you want to give it, for those who don’t know, it is essentially a philosophy of allocating your investment dollars in a way that is concerned with both the financial return and the overall social good of the underlying investments in a portfolio. The idea is to build a portfolio that rewards companies who engage in corporate practices that promote environmental stewardship, consumer protection, human rights, and diversity to name a few, while at the same time avoiding businesses involved in areas of concern such as tobacco, weapons and the military and fossil fuels etc. There are other areas of concern for many out there, and they differ depending on what your individual values are, but as a financial advisor in Berkeley, CA, I think our audience is mostly aligned in the things we think of as areas of concern. That said, it is important to know that as you go farther afield, those values do change significantly as you can imagine.

Now the actual nuts and bolts of how companies are screened and the process of building SRI portfolios is a subject worthy of its own blog, or maybe even a series of them, but it’s definitely one that’s too much to get into on this episode. What I did want to express today is why I believe it is so important, in this specific moment, to continue to espouse the virtues of socially responsible investing, and double down on our commitment to promoting this kind of activism with our investment dollars.

The incoming administration has made no secret of its beliefs when it comes to climate change. And how that relates to the fossil fuel industry and any number of associated industries is fairly well documented. Here’s the thing, most of the climate change deniers you hear out there, don’t really believe that climate change is a hoax. It’s all about money. They simply need to create enough doubt among the public to muddy the waters, so they can continue to get elected, and collect the lobby money from the fossil fuel industry.

But here’s the funny part…if you dig into the weeds a bit when it comes to renewable energy, what you’ll find is that some of the biggest energy companies, ones you would never imagine as climate friendly, are investing the most money into the renewable energy space. And if you think about it, it makes perfect sense. Imagine you run a huge energy company that has made billions of dollars providing energy based on fossil fuels, which you know there is a finite amount of. Wouldn’t you be looking for an alternative source of energy that’s both abundant and wont turn off half of your customers? I sure would. It’s just that it takes time and money to convert, so in the meantime, you need politicians to run cover for you, so you can continue to make billions on the model you have, until you can start to make billions on the model you know the world is moving towards.

Now this is just one very simplistic example, in one area of the world of SRI investing, but I think it’s an important one to point out. And the reason is that for years it was thought that investing this way meant you had to be willing to leave some returns on the table. The idea was that if you leave out certain high profit industries from your portfolio, like energy and tobacco for instance, that there was no way you could realize the same gains as someone who didn’t screen those out. But this is simply not what we have found. What we have found is that over the long run, SRI portfolios have been extremely competitive with non SRI portfolios, and that any underperformance that may exist, mainly comes from higher expense ratios. You see, in the past it has cost more to invest in this way, since you need the infrastructure in place to screen the companies, which can add to costs. But as interest has grown, those costs have come down significantly, to where the expense ratios of the investment vehicles are approaching those of their non-SRI equivalents, and I only see that trend continuing.

Now I’m sure there is someone out there hearing this and thinking that I’m some ‘woke’ Berkeley guy, who’s lost the plot, and I’m ok with that. I’ve been called worse. But I mention this because in that lies one of the biggest challenges socially responsible investing faces. And it’s also why now is such an important time to stay in the fight to promote SRI investing. I believe there has been a large groundswell of anti-woke sentiment in America, that has been fairly well exposed by this past election. For whatever reason, lots and lots of people seem to be highly offended by what they perceive as woke-ness. And its hard for those of us who have spent most of our time here in the Bay Area because I think we never really thought of ourselves as ‘woke’ necessarily. Liberal, yes, progressive, for sure, but woke? I never even heard that word until a couple of years ago.

But however you define it, the backlash to it seems to be real, and my fear is that this backlash will have a detrimental effect on the SRI investing world. In some sense it already has, as some big firms like Vanguard and Goldman Sachs have already distanced themselves from their more ambitious SRI investing agendas recently.

And this is why I think right now may just be the most important time in recent memory to stay vigilant when it comes to supporting socially responsible investing and the clients who are committed to it. Because the bottom line is this…as much as we want companies to do the right thing simply because it’s the right thing, that’s not going to happen most of the time. The vast majority of publicly traded companies are primarily focused on two things: profitability and creating value for shareholders. So if the investing public wants them to do the right thing, they need to force them to do it, by voting with their dollars. You see if companies know investors won’t invest unless they’re on the right side of this, or better yet, if they know consumers won’t use their products, AND investors wont invest I their companies unless they do the right things, that’s when we’ll begin to see the pendulum start to swing back.