An Explainer on Our Approach to ESG Investing and Company Screening

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An Explainer on Our Approach to ESG Investing and Company Screening

You’ve decided you want to get involved with impact investing — you want your investments to have a positive, measurable social and environmental impact, while also having a financial return.

You’ve reached out to The Humphreys Group to get started with impact investing. So what can you expect in the process? We give a general outline of our process in today’s blog post.

Impact Investing with The Humphreys Group: What You Can Expect

When you show an interest in investing in socially responsible/value-based funds, we will provide you with an ESG questionnaire that helps you think through your values.

This questionnaire includes several issue topics such as:

  • Alcohol (whether a company has more or less involvement in the alcohol industry)
  • Animal testing (whether or not a company uses animals in testing pharmaceutical and/or non-pharmaceutical products)
  • Community investment/relations (the extent to which a company is involved in charitable programs, support for education, housing, and other community-based programs)
  • Diversity (whether a company has more or less women and minority board members)
  • Employment equity (evaluation of issues such as health and safety, union relations, profit sharing, and employee involvement)
  • Environment (whether a company has strong or weak environmental performance and trends)
  • Firearms (whether a company is involved in firearms and ammunition manufacturing)
  • Gambling (whether a company is involved in the gambling industry)
  • Renewable energy (extent to which a company’s products foster renewable energy sources, research, and development)

In these materials, you’ll be able to rate each social concern to indicate the level of importance to you, describe your stance on each issue, and mention any other concerns.

From this questionnaire, we can identify which ESG funds best align with your values.

How Does Each ESG Fund Screen the Companies They Invest In?

Here is how each ESG fund we offer — such as the Pax Ellevate Global Women’s Leadership Fund, the Pax Global Environmental Markets Fund, Dimensional Fund Advisors’ Social Investment Funds, and Dimensional Fund Advisors’ Sustainability Funds — determines which companies make the cut. Note: We invest in a wide range of ESG funds from a group of ESG investment firms. These are some examples, but they don’t represent the full breadth of what we offer.

1. The Pax Ellevate Global Women’s Leadership Fund:

The Pax Ellevate Global Women’s Leadership Fund was the first broadly diversified global mutual fund to invest in the highest-rated companies in the world for advancing women through gender-diverse boards, senior leadership teams, and other policies and practices. The Fund invests in companies that understand the value of gender-diverse leadership teams.

How companies make the cut:

  • Representation of women on the board of directors
  • Representation of women in executive management
  • Hiring, promotion, and retention of women
  • Gender pay equity
  • Proactive gender goals and targets and/or signatory to the Women’s Empowerment Principles (WEPs), a joint initiative of the UN Global Compact and UN Women
  • Transparency about gender diversity data

2. The Pax Global Environmental Markets Fund:

The Pax Global Environmental Markets Fund invests in companies that are developing innovative solutions to resource challenges in the four key areas of new energy; water; waste and resource recovery; and sustainable food, agriculture, and forestry.

How companies make the cut:

  • The Fund chooses companies in increasingly important global environmental markets, companies focused on resource efficiency, and companies providing environmental solutions and net carbon reductions.

3. Dimensional Fund Advisors’ Social Investment Funds:

Dimensional’s social investment funds enable investors to pursue higher expected returns across stock and bond markets while maintaining alignment with social priorities and philosophies.

How companies make the cut:

  • Generally, the funds will seek to exclude securities of firms engaged in contentious activities relating to health care matters, alcohol and tobacco, gambling, adult entertainment, indiscriminate antipersonnel weapons, and human and/or labor rights. Their social funds exclude individual securities issued by companies that are involved in controversial activities while preserving investors’ ability to pursue higher expected returns across stocks and bonds.
  • Historically, the screens established for Dimensional’s social funds have taken into account the United States Conference of Catholic Bishops (USCCB) Socially Responsible Investment Guidelines, among other factors.
  • Dimensional utilizes leading third-party firms that provide detailed screening criteria. Where appropriate, they may use multiple vendors to ensure depth and transparency in our social screening.
  • They apply screens across both equity and fixed income strategies. They generally evaluate companies holistically; if any subsidiary fails one of their screens, that subsidiary and all other subsidiaries and the parent entity are excluded.

4. Dimensional Fund Advisors’ Sustainability Funds:

Dimensional’s approach seeks to address the sustainability issues important to investors while continuing to offer broad diversification and focus on higher expected returns.

How companies make the cut:

  • Sustainability considerations include greenhouse gas emissions intensity, land use and biodiversity, toxic spills and releases, operational waste, water management, and other considerations.
  • When applying sustainability considerations, companies can be rated or scored on certain sustainability-focused metrics. With a sustainability score assigned to each company across all major sectors, investment in companies with high environmental sustainability scores can be emphasized while investment in companies with low scores can be minimized or excluded.
  • Additional screens can be applied to reduce exposure to companies negatively connected with other issues important to sustainability-minded investors.

Get Started with Impact Investing

If you’re interested in learning more about impact investing, reach out to our team today.