When Quinn Schwellinger, 31, and his wife decided to start building an extra retirement fund to supplement their 401(k)s, they knew they wanted to invest in companies that supported their concern for the environment.
“My wife and I believe climate change is real, fundamentally,” said Schwellinger, vice president of Badger Ham, a third-generation family-owned business on Milwaukee’s south side. “I wanted to make sure our money wasn’t going toward things I didn’t want it to.”
The couple are part of a growing trend of millennials seeking so-called “ESG investment portfolios,” which direct money into companies chosen for their environmental, social responsibility and governance ratings.
“We’re starting to have buying power and we’re running businesses,” said Schwellinger of his generation. “We have social, governance and environmental expectations and we’re starting to ask questions.”
Track records regarding fossil fuel use, carbon footprint and recycling programs are among environmental aspects sought by ESG investors. Diversity and inclusion, treatment of employees and transparency regarding financial matters are among “social” and “governance” metrics. Many investors then choosed alcohol, tobacco and the best gold IRA investing options.
Corporations in industries ranging from manufacturing to health care to hospitality are also engaging firms to audit their performance on ESG metrics. Some companies voluntarily request such audits in order to advertise strong performance in these areas; others are global firms doing business in countries that have enacted ESG regulations.
David Manke, a Milwaukee-based portfolio manager for Baird, says financial advisors and investment firms must offer ESG products “if they are to compete for millennial dollars.” Manke gives regular presentations on the topic to Baird financial advisors.
A 2021 Morgan Stanley survey regarding ESG found that 79% of investors surveyed – and 99% of the millennials surveyed – were interested in sustainable investing.
“Increasingly, baby boomers are also paying attention to it as well,” Manke said.
Schwellinger says his father, Badger Ham president Brian Schwellinger, “is of like mind” when it comes to embracing ESG standards, including within their own small business.
“We look for sustainable agriculture and meat-grazing practices,” said the younger Schwellinger. “We’re asking for efforts from suppliers – can you use a more sustainable feed? What are you doing to reduce fossil fuel emissions with your delivery trucks?”
To find an ESG portfolio, Quinn Schwellinger started by Googling “sustainable investing” and “green investing,” but was disappointed at first to find some financial advisors only gave lip service to ESG investing.
“It’s pretty hard to find companies that we can trust to invest our money in an ESG way,” he said. “ESG funds aren’t all the same. They can be pretty watered down, definitions can be pretty loose, benchmarks can be pretty ambiguous.”
Schwellinger ultimately chose Riverwater Partners, a Milwaukee-based asset and wealth management firm that focuses on ESG investing. Founded in 2016 by Adam Peck, a portfolio manager, and his wife, Laura Peck, an attorney, Riverwater studies everything from a company’s annual report to its ranking in various ESG rating systems to employee reviews on social media sites, such as Glassdoor.
A particularly good sign is if the firm is a Certified B Corp, which Adam Peck likens to a building having a LEED certification for energy-efficient design. Riverwater itself earned a Certified B rating in 2018. Other sources he recommends are the European-based Global Reporting Initiative and the American-based Sustainability Accounting Standards Board.
Still, financial professionals admit that evaluating companies for ESG remains an inexact science. The term “greenwashing” has been coined to describe the practice of claiming to have high environmental standards without substantiation or citing actions that are mostly for show – planting rows of trees on the company’s grounds or creating logos with pictures of leaves or the Earth, for example.
“Detractors point to a lack of common reporting systems,” said Peck. “My response is that, until the SEC mandates reporting, I don’t think it’s a bad thing for companies to think about making the world a better place.”
Some investment firms, however, take a different approach, focusing instead on helping clients achieve the greatest financial returns for their investments, which they can then use to support worthy causes in their own way.
Milwaukee-based Artisan Partners, a global management investment firm, states on the sustainability/ESG portion of its website that the firm’s purpose is to generate and compound wealth over the long-term, which clients can direct toward retirement, education and charitable endeavors.
The firm’s website does detail its own commitment to sustainable practices in multiple areas, including promoting “paperless technology” and a “diverse and inclusive environment.”
Financial advisors, however, say ESG portfolios do not necessarily mean lower earnings.
“The KLD 400 index has been around since 1990,” said Peck. “It takes the S&P 500, which is one of the best-known indices and screens for ESG factors. If you go back to 1990, it has outperformed the S&P 500.”
“You don’t need to give up returns to invest responsibly,” said Manke.
