In Episode 3 of The ESG Update, Business Development Specialist at the Wealth Consulting Group, Brittany Damico, joins the pod to discuss gender lens investing and best practices for communicating with investors about their values.

Transcript

Dan Carreno, Change Finance:
Welcome to The ESG Update presented by Change Finance. I am your host, Dan Carreno. I am the head of business development at Change Finance. We are an ETF provider dedicated to environmental, social, and governance investing, and our mission is to help investors align their portfolios with their values without sacrificing returns. Joining the pod this week is Brittany Damico. Brittany is a Business Development Specialist at the Wealth Consulting Group, which is a registered investment advisor. She has all kinds of wonderful education and experience in environmental science and ecological economics. And she also works as a Project Manager on her firm's High Impact Portfolio. Brittany, thank you for being on. How are you doing today?

 Brittany Damico, Wealth Consulting Group:
I'm doing great. Thank you, Dan. Looking forward to being here.

Dan Carreno, Change Finance:
Brittany helps many financial advisors at the Wealth Consulting Group speak to their clients about sustainable and responsible investing. I asked her to join the pod today to talk about some best practices and how she helps financial advisors have this degree of communication about values and investments. She's going to share some great insights with us, but first, we're going to chat about some reports and surveys that are germane to sustainable investing. Brittany, ready to dive into those? All right. First up is a report from Calvert Impact Capital. It is titled, “Just Good Investing, Why Gender Matters to Your Portfolio and What You Can Do About It.” The bottom line here is that Calvert conducted a quantitative analysis of their investments over an 11-year period and found that companies with the highest percentage of women on boards and in leadership positions outperformed those companies with the least. Then they make a special point to say that women in leadership roles are especially important to financial performance. So I want to focus on that metric. They ranked companies based upon the representation of women in leadership, and they found that companies in the top quartile had an average return on equity of 8.6%, while for those in the bottom quartile, it was only 4.4%. They also found that companies in the top quartile had an average return on sales of 18.1% versus -1.9% for those in the bottom quartile. I'll pause there. Brittany, what do you think about Calvert's analysis?

Brittany Damico, Wealth Consulting Group:
I think the numbers say it all. I think it is very clear and obvious the importance of integrating a gender lens into investing. At the Wealth Consulting Group, I would say supporting women and investing is one of our other larger initiatives. We go from investing in women to investing alongside women to trying to promote women in the financial services industry and to supporting women entrepreneurs. There are so many different avenues to look at when it comes to the subject, and the Wealth Consulting Group is at the forefront.

Dan Carreno, Change Finance:
This is really what I want to get your opinion on: Calvert offers some suggestions at the end of the report, and they say, it's pretty obvious here that gender diversity within an organization has a material impact on the strength of the investment. How then, as an investor, do you actually start thinking about that? Their recommendation is to seek out data or investment managers that consider things like women in leadership and on boards, gender equity focused policies within the company, goods and services produced by a company and how they may impact women, and of course, any track record of sex discrimination and pay equity. Any thoughts and suggestions about how folks have done this in their portfolios and on behalf of their clients?

Brittany Damico, Wealth Consulting Group:
I think what's really important when looking at these kinds of metrics to make sure that you're getting accuracy and the level of transparency necessary to make the right decisions. It’s important to work with partners who are fully integrated within ESG and that have the right data and resources. The average joe investor is not necessarily going to know where to look to find the specifics of gender lens investing. In this type of investment, it's like building a team. You should hire people smarter than you. You want to look for these companies that have already built the necessary parameters and the metrics. I would suggest looking at the companies that are fully committed to ESG and that are tried and true if you will.

Dan Carreno, Change Finance:
That’s something that we talk about a Change Finance all the time: dedication to ESG and intentionality. It matters. It really does make a difference. I really appreciate your thoughts and insights on that report. Let's move on. Let's talk about the second article that we're going to chat about today, which comes from FA Magazine. It is titled “Advisors and Clients Still Light Years Apart on Values Based Investing.” This is basically a report on a survey that was conducted by the Money Management Institute. They started by asking 1,000 financial advisors and asked what percent of your clients do you think are interested in investing in some sort of SRI, ESG, or values-based approach. The advisors came back and said 44% on average. Then they posed the same question to 1,500 high net worth investors and asked how many are interested in this type of investing. 76% said that they were interested. So Brittany, it seems like there's a little bit of a disconnect here. What do you think?

Brittany Damico, Wealth Consulting Group:
I actually wrote my dissertation when I studied ecological economics on the behavioral drivers behind sustainable investors. All of the empirical data that I collected echoed this narrative that there is a huge discrepancy between the number of people who are interested to even just learn more. It's not even that everybody wants to jump in headfirst. There's a curiosity level with that 76% of people, but the advisors are the bottleneck. Perhaps they're not comfortable with the subject. Maybe they don't want to come across as their values being different than their clients. They think that they might distance themselves by having that conversation. So absolutely, there's is a discrepancy in the space, and I think there's a lot of business opportunity that's being missed. So many people are interested in the subject. It just takes a little bit of research and understanding to have an opportunity that might move a client away from one advisor and bring it to another.

Dan Carreno, Change Finance:
A couple of other stats from the survey that I wanted to mention: they asked the group of advisors what percentage of their clients did they believe would expect lower returns when investing in an SRI or ESG format? Advisors responded that 49% of their clients would associate values-based investing with lower returns. Then they asked the same question to the group of high net worth investors, and 95% of those investors said that they did not believe that they would have to sacrifice returns in order to invest this way—another big gap. Finally, the last stat that I wanted to share was financial advisor satisfaction. 77% of those clients that we're investing in alignment with our values reported satisfaction, whereas 66% of those investing along more traditional lines reported satisfaction.

Brittany Damico, Wealth Consulting Group:
Another finding from my dissertation was that even if there was a sacrifice of returns, altruism was one of the main drivers behind people who wanted to invest sustainably. Putting that aside, there is lots of data showing that decreased performance is not necessarily correlated with ESG. I think if we can just eliminate that idea, that investing in ESG or sustainability is going to hurt your returns… Through all of these different studies, it has been…

Dan Carreno, Change Finance:
Debunked. Should we say debunked?

Brittany Damico, Wealth Consulting Group:
Yes! That narrative is just unnecessary at this point. I think if you're aligning values, if you're walking the walk of what you believe in, if you know that your portfolio is making an impact, whether it be on a large scale or small, I think that inherently it's going to feel good. You can walk out of an appointment with your advisor and feel like you're making an impact on the world around you.

Dan Carreno, Change Finance:
I'm glad you mentioned that. Both Brittany and I were attending the same virtual conference last week, and this conversation came up more than once with some of the other financial advisors that were there. Everybody kind of had the same experience. Once they started speaking with their clientele about their values, what they were passionate about, and what moved them, it allowed for a much deeper level of connection with them as human beings. And shocker, it turns out that standard deviation, beta, and alpha are not the best ways to connect with other human beings.

Brittany Damico, Wealth Consulting Group:
Absolutely. I think the deeper connection, the who of a company, is something that has been coming up so much more recently, especially with everything happening in terms of social justice and what’s happening in the world right now. I think that who the company is, what they're doing, how their behavior is having an impact on society is much more of a conversation than it's ever been before.

Dan Carreno, Change Finance:
This survey from the Money Management Institute suggests that there is a communication breakdown between investors and advisors as it pertains to values-based investing. Brittany, I know communication around these issues is your jam. So, we want to hear from you on that. But first, I was wondering if we could back up just a bit and hear a little bit more about you, how you got into this work, more about your background, and then go from there.

Brittany Damico, Wealth Consulting Group:
Absolutely. I was working with independent financial advisors out in the field for about eight years, and I decided I wanted to go back to school. So I went and studied environmental science and chemistry and had made the commitment that I was leaving the financial space. I was going to go save the world, but I ended up coming back because finance always kind of pulls you back. I wanted to find a way to bridge the gap between the environmental conversations that I was having and the financial world. I stumbled upon the subject of ecological economics, and immediately I was hooked. So, I ended up getting a postgraduate degree in ecological economics. I focused my dissertation on the behavioral drivers of socially responsible investors and how product companies could increase competitiveness. I did that in Edinburgh. When I came back to the States, I was lucky enough to find the Wealth Consulting Group who have their own proprietary models, two of which are ESG or what we call our High Impact Models. I was thrilled to become a product manager for those. Part of that is marketing and communicating with about 80 advisors across the States. Each depending on where they are, depending on their comfort levels with ESG, their understanding, it's always a different conversation to help them integrate it into the day to day conversations with their clients. For some people, it's really organic. For some, it's a bit more challenging. I think it comes down to education and having an understanding. It's easy to talk about something that you understand, and it's scary to talk about something that sounds more esoteric or unfamiliar.

Dan Carreno, Change Finance:
I appreciate the background. So let me ask based upon your experience and the work that you do day in and day out, what are some of the best practices that you've seen in terms of communication with clients and prospects about this type of investing?

Brittany Damico, Wealth Consulting Group:
For a lot of the advisors, I think in their mindset is that it's all or nothing. I have to be fully committed or not at all when it can be a really easy conversation. Have you heard of ESG? Have you heard of value-based investing? I think they're always intimidated the client's going to come back and know this more than they do, and then they're going to be in the space of being uncomfortable. But it's literally just kind of dropping it in having conversations about what's happening in the world, getting that human connection with the client. I think when you try to be a little bit more conversational about it, the investor, 70% of the time, will come back and say that they’re interested. Can you tell me a little bit more about that? And then depending on what offerings they have available or maybe what marketing material, they can reference that. Then they're supported by whatever it is that they're utilizing. Whether it be something from our marketing collateral, they could say we have these specific topics that we can cover in the ESG space. Do any of these strike you? Are you passionate about any of these?

Dan Carreno, Change Finance:
That's a really interesting point that you brought up. This fear that if I bring this up, I’m going to get bogged down in a conversation where maybe I don't have all the knowledge at the tips of my fingers. Is that a real fear? Is that founded? How often do clients come back and start talking about granular ESG data and catch their financial advisor in a place where they feel uncomfortable? I imagine that that probably doesn't happen too often. Right?

Brittany Damico, Wealth Consulting Group:
To date, I have not ever seen or heard anyone come back and say, “Oh my gosh, my client just rocked my world! They gave me every stat known to man about gender lens, and I was terrified.” That's never been the case.

Dan Carreno, Change Finance:
One of the other things that I hear in a lot of my conversations is a bit of reluctance to sometimes go down this road because folks think that they will get into a conversation about politics. We generally want to keep that out of our professional relationships. Any advice for those folks on how to separate this from any kind of a political discussion?

Brittany Damico, Wealth Consulting Group:
A lot of times, people are very reluctant, especially on the subject of climate change. That's what instigates a lot of those politically polarized opinions. I think a key is that if a company gets bad press, it is bad for performance. So I think that it's looking at the who of a company. How are they taking care of their employees? What are they doing in terms of corporate governance structures? These are things that aren't necessarily political. They are just good business practices. Good business will keep you from bad press and will help you mitigate risks. Come at it from more of the risk mitigation angle, as opposed to a passionate value base. That’s another introductory step for advisors who maybe aren't as comfortable with jumping into a values-based conversation. Here's my whole soul that I'm going to divulge to my clients about how I believe in something. You know what, we're just going to look at this from a risk standpoint. These ESG screens are nonfinancial factors that are another overlay to protect principal. It depends on how you want to go about it. Some people are very proud of their beliefs, and they want to represent them in a very strong way. Other people maybe just want to keep it on the metric side to get their feet wet until they’re more comfortable jumping into a values-based conversation. There's just different perspectives.

Dan Carreno, Change Finance:
It goes back to that report from Calvert about gender diversity within an organization. If I posed the question, would you rather invest in the company that has a higher return on equity or a lower return on equity? In almost every case, somebody is going to ask for a higher return on equity. And if we know that women being in places of leadership within the organization is correlated with that, it’s a meaningful data point in terms of how we manage portfolios. Even somebody that doesn't necessarily feel passionate about gender lens investing from a moral and ethical standpoint is still going to love the idea that it's correlated with better financial metrics, right?

Brittany Damico, Wealth Consulting Group:
Yes, absolutely. There's an interconnectedness of so many different aspects of ESG, and obviously, performance is something that no one wants to jeopardize, even though some might, according to my research, the altruistic. But it's not a matter of jeopardizing performance. It's a matter of having that full perspective of how to get ahead in the market. What’s important? There's meaningful metrics like that report. Who wouldn't like gender lens investing? That's something that's important on a lot of different levels, performance and social.

Dan Carreno, Change Finance:
Let me ask you this. As far as tools and resources that you know of, or may have available, that would be helpful for advisors in having these types of conversations more often and in more depth with their clientele, what suggestions do you have?

Brittany Damico, Wealth Consulting Group:
There are lots of different ways to approach this particular question. I do a lot of original content. I write blogs. We just did what we call the WCG Impact Series, which touched on different parts of the E, S, and the G, and responses to COVID. What different companies are doing… what environmental thematic investing looks like whether that be in water or fossil fuel free… different aspects in terms of the social component… what different companies are doing to help support the bottom line workers. All of these different aspects are so important. Being in the know is especially important right now, where things are like evolving so quickly. For people who are getting started, who are looking for some resources, As You Sow is a fantastic resource. Just Capital is another really great resource. It's great for storytelling. They provide little one-liners of what companies are doing. I think those are really helpful in conversations. One of the pieces that we put together in our marketing materials is an advocacy report. Looking at the companies that are in our models and the impact that they've had through their proxy voting and through their advocacy work. It’s a conversation piece that you can bring to the client to say, “this is a very tangible impact that you're having on the community, on society, by investing in this model,” and people can walk out of that meeting feeling great. It's not some theoretical concept, but something very tangible that they can relate to. I think having stories are important. USSIF is another great resource, which is the Sustainable Investment Forum.

Just finding a few places that you check and read once a day to stay in the know, and then the conversations will organically become more comfortable. Another aspect that we integrated into our marketing with the Wealth Consulting Group was putting that Impact Series of all of these different blogs and different aspects of ESG and making an e-book. We created a nine-page really easy read. It's a great tool for advisors, and they can provide it to the clients. It’s just an overview. It's kind of a 30,000-foot view of what ESG can look like. We've got some specific stories as examples, and then an overview of what is responsible investing for the environmental side. Just having material like that has been so helpful. I know a lot of the advisors who are a little bit newer, who are learning to have these conversations, have found comfort in having a resource that they can rely on. The other advisors who are the OGs of ESG space, they also like having all of the resources. They want to have as much material as possible to spread the word. Anything that we can create and get out in terms of that, it's going to be helpful.

Dan Carreno, Change Finance:
Those sound like amazing tools and resources. If folks want to track you down to ask you more questions or to access something like the e-book, how would they go about doing that?

Brittany Damico, Wealth Consulting Group:
Anybody who wants to learn more in terms of the ESG space, gender lens investing, environmental thematic investing, learn more about models, marketing, material, conversation, pieces, please get in touch with me. You can look up the Wealth Consulting Group. We have a sustainability tab that goes into what we're doing as a firm, but if you have specific questions, you can find my information there, and I would love to continue the conversation.

Dan Carreno, Change Finance:
Thank you so much. We'll wrap it up there. If anyone listening wants to find links to the articles and resources that were discussed during the pod, you can go to www.change-finance.com, find our podcast library under the INSIGHTS tab, and the links are always provided in the podcast transcript. And if you have questions or feedback for us, please get in touch with us through the website. Thank you, Brittany, for being on today. We appreciate your wisdom and insights. Thank you to those that tuned in and listened, and we will be back soon in your podcast feed with the next episode. Thank you, and have a good day.

Brittany Damico, Wealth Consulting Group:
Thank you, Dan. It was a pleasure. I appreciate it.

Disclosures, Definitions, and Footnotes

The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

An Environmental, Social and Governance (ESG) fund’s policy could cause it to perform differently compared to funds that do not have such a policy. The application of social and environmental standards may affect a fund’s exposure to certain issuers, industries, sectors, and factors that may impact relative financial performance — positively or negatively — depending on whether such investments are in or out of favor. 

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through WCG Wealth Advisors, a registered investment advisor. WCG Wealth Advisors and The Wealth Consulting Group are separate entities from LPL Financial. WCG Wealth Advisors, The Wealth Consulting Group and LPL Financial are not affiliated with any of the other referenced entities.