Kimberly Greigo-Kiel of Horizons Sustainable Financial Services and the Deep Impact Investing Podcast joins the show discuss the value dedication to sustainable investing. She also provides her thoughts on a couple of new reports from USSIF and Majority Action. 

Transcript

Dan Carreno, Change Finance:
Welcome to The ESG Update presented by Change Finance. I'm your host, Dan Carreno. I’m the head of business development at Change Finance. We are an ETF provider dedicated to environmental, social, and governance investing. Our mission is to help investors align their portfolios with their values without sacrificing returns. My guest this week is Kimberly Griego-Kiel. She's the president of Horizons Sustainable Financial Services. That's a wealth management firm based in beautiful Santa Fe, New Mexico. Kim, thank you so much for joining me today. How are you? 

Kimberly Griego-Kiel, Horizons Sustainable Financial Services:
Great, Dan, thanks for having me on.

Dan Carreno, Change Finance:
Kim is going to be kind enough to share some of her experiences related to the branding of her firm and how they present themselves to the public, which I think is going to be a very interesting conversation. But first, we are going to chat about a couple of recent reports that have come out. One from USSIF that talks about the pros and cons of ESG investing in passive investment strategies. The other report is from Majority Action and that is about the proxy voting practices from some of the largest asset managers in the world. 

We'll start off with the report about ESG in passive investments. It's a long report, and it would be too much to get into all of it, so we're just going to focus on one particular section, which discusses the criticisms and defenses of ESG as it applies to passive investments. The first criticism that was brought up is that ESG indexes can often be over-concentrated in particular sectors or industries. And the defense that the report brings up is that this is true for just about any fund or ETF on the market. Kim, what are you thinking? 

Kimberly Griego-Kiel, Horizons Sustainable Financial Services:
I believe that is true for a fund or an ETF that has a particular strategy. If you're looking at an ETF that is focused on technology, whether it's an ESG strategy or not, then it's going to exclude a lot of other sectors. That's their strategy. It's going to exclude a lot of other things. If you're looking at an ETF that is focused on ESG, it’s going to leave out certain sectors. Does that mean it's heavily concentrated in other sectors? Maybe, but because they need to round out their portfolio, they might be heavy in certain areas and light in others.

Dan Carreno, Change Finance:
New funds are being launched and coming out, so if you are particularly worried about over-concentration, there will be options that don't have those characteristics, and there will be other funds that are concentrated. It all comes down to due diligence. Okay, the last criticism was about shareholder advocacy. Critics say it's much more difficult to engage in shareholder advocacy in an index fund. What are your thoughts there? 

Kimberly Griego-Kiel, Horizons Sustainable Financial Services:
I don't understand why that's a criticism. An index fund is going to hold shares for a longer period of time. I don't see how that's a criticism. You want to hold those shares for a while in order to file shareholder proposals. I don't understand how that's a criticism. It just gives more opportunities. If it's following an index and it's not normally something that the fund manager would hold because they would screen it out, it gives them an opportunity to say, “Alright, we're going to hold this because it's in the index. It would normally be something we would screen out, but we have an issue with this company. So, we're going to hold shares of it. It's in the index we’re following, and we're going to hold shares to use it for shareholder advocacy purposes. I think it gives them an opportunity. It doesn't feel like it should be a criticism. It seems like it should be a positive.

Dan Carreno, Change Finance:
This perception is maybe somewhat understandable. When we get into the next report about proxy voting, you can see why some people have frustrations around this. But it boils down to the particular fund. Change Finance is an ETF provider, and we put a lot of emphasis on shareholder advocacy. It just really depends on the team and the fund company. So Kim, what's the final ruling? Who wins in the Superbowl of passive versus active?

Kimberly Griego-Kiel, Horizons Sustainable Financial Services:
It's my opinion, and not necessarily the opinion of the entire firm, that the better strategy for the majority clients is that active management is better. And if we look at that in terms of this year, it makes sense. When we're looking at a year where we have extreme volatility, what I want is a manager who is actively involved in choosing stocks to buy and sell in a volatile market. They need to make decisions quickly and make changes. So, I believe in markets like this, you have to be able to move and be strategic. So that's my opinion. 

Dan Carreno, Change Finance:
Very interesting to hear your comments there. Let's transition, and let's talk a little bit about this Majority Action report . I was a little fired up about this one as well. I'll try to contain myself. The name of the report is “Climate in the Boardroom: How Asset Manager Voting Shaped Corporate Climate Action in 2019.” I'll give a quick summary, and then Kim, I'll let you go off. The report starts off by saying that we're running out of time to deal with the climate issue. We basically have about ten years to cut global emissions in half in order to be on a trajectory to get to net zero emissions by 2050. The implications of blowing through 1.5˚C or 2.0˚C of warming are pretty dire, and the fossil fuel industry and the utility industries in particular really need to act on this, and they need to act quickly. They need some incentives from shareholders. Unfortunately, what this report finds is that the largest shareholders, BlackRock and Vanguard, are not using their agency and their position as shareholders. They're not leveraging that in order to effect the type of change that we need to see relative to climate change. They make a couple of points. Number one, BlackRock and Vanguard voted for 99% of company proposed directors and 100% of pay proposals. This is really interesting because it turns out that they are actually supporting the management of utility and fossil fuel companies at a higher rate than they are the rest of the stocks in the market. Then on the topic of climate-critical shareholder resolutions that were filed in 2019, there were 41 of them, BlackRock only supported five and Vanguard only supported four, which is some of the worst support of any asset manager on those issues. To provide a little bit of context, asset managers like BNP Paribas, PIMCO, DWS, they supported 95% of those resolutions. It’s a drastic difference between these groups. Kim, let me hear your feedback. 

Kimberly Griego-Kiel, Horizons Sustainable Financial Services:
Pass that baton here. I wish the listeners could see my face as I respond. I am not going to make any friends here as I respond to this. Over the last two years, we've seen a lot of press, specifically from the leadership at BlackRock tooting their horn about ESG. Larry Fink has really been promoting this. But this is where we really see what matters. There's no ESG really happening. And because they're not voting their proxies in accordance with what they're saying publicly, it makes me angry. I'm disappointed. It's really greenwashing when you get right down to it. It's greenwashing because they want to bring in assets, but they're not going to do what it takes to be a sustainable fund. I'm going to call out Fink and tell him if he really wants to do this, he's got to do it all the way. He has to go a hundred percent.

Dan Carreno, Change Finance:
It feels like a bait and switch. I know a lot of individuals that appreciated the letter that he wrote at the beginning of the year. People thought that BlackRock has all this money under management, and they're going to be able to move the dial on this issue. Folks said, “I'd be happy to invest with BlackRock if this is going to be their stance.” And then nine months later, they're confronted with these headlines, and they’re saying, “that's not what you told me that you were going to do.” I'd be curious about your opinion on this, Kim. I did an interview with Gabe Rissman from YourStake.org not that long ago. He said he couldn't tell if it's malicious or if it's ignorance in the sense that there are completely different parts of the organization that are not talking to each other. What do you think? 

Kimberly Griego-Kiel, Horizons Sustainable Financial Services:
I honestly don't think it's ignorance. I really don't. I think there might be a few people at the firm who truly believe in this. I believe there are some people who really have it at heart. I believe there are people at mutual fund companies all over the place who believe in this and have probably been pushing it for a while. But I don’t believe it’s ignorance at the top. That's the piece that makes me angry. I have felt for years, and I've been in this industry for 22 years next month, that there's always going to be a segment who want to participate in this for the draw of the assets. Now, is that what BlackRock is doing? Is that what Vanguard is doing? Maybe, I don't know. I don't know that the true heart of those folks, but I believe there will always be folks who want that. There's always going to be someone who will do this as part of the greenwashing process.

Dan Carreno, Change Finance:
I have to throw my hat in the ring with you on this one. I may have given them the pass on ignorance a few years ago, but the problem is this is not the first time that they're getting these types of headlines. This is happening over and over again. And they repeatedly come out saying the same things. Now, we're really going to focus on this. Now it's really a core part of our business. And then the same headlines come out year over year about their proxy voting practices. It's a shame. They have so much influence, so much power. It would be nice if they wielded it for good. Hopefully, a year from now, we'll do another podcast, and we'll be talking about a different report. But for the time being, it’s disappointing. Let's leave it there. Let's talk about something more positive. Let's talk about your business, Kim. I think this will be really interesting for financial professionals who are getting more involved in sustainable investing. At Horizons, you have been quite forward about your commitment to sustainable investing. The thing that probably demonstrates that the best is that when you log onto your website, the first thing you see is a tagline that says, “Invest Like You Give a Damn.” It’s very front and center. What's your experience been in terms of devoting your entire firm towards a sustainable investment? 

Kimberly Griego-Kiel, Horizons Sustainable Financial Services:
We redid our website five or six years ago now as we redid our marketing and worked with our marketing firm to come up with this tagline. It was a bold move to do that. We hesitated a bit and thought, “do we go all in like this?” We've always been a 100% ESG/SRI firm. We thought, “okay, let's do it and see what happens.” Honestly, it was the best thing we ever did.

We've had really good feedback from it. It leaves no doubt about how we feel around the sustainable investing piece. Nobody questions what we're doing or how we feel about it. 

Dan Carreno, Change Finance:
Have you ever received any negative reactions at all? 

Kimberly Griego-Kiel, Horizons Sustainable Financial Services:
Nobody has said anything. I think if there was a negative reaction, they have not given that to us. The reactions that we have received have been, “I appreciate your statements. I appreciate how you feel.” The advisors who have seen our website have said it’s really good. When we changed our website and our logo, we started getting new clients like crazy. It really brought in new clients. So, I actually think it was the best thing we could have done. 

Dan Carreno, Change Finance:
The other thing that is very forward on your website is you have a podcast called Deep Impact Investing. So you're no stranger to the podcasting world. When did you start the podcast, and how do you feel it's contributed to your practice? 

Kimberly Griego-Kiel, Horizons Sustainable Financial Services:
I started the podcast almost two years ago in January of 2019. We did a couple of episodes before that, just to kind of see how it would go, but really launched it in January 2019. And I honestly enjoy the podcast more than anything else I've ever done. I like having different guests on. I enjoy the presentation of different topics. I get great feedback from clients, potential clients, and people who don't become clients. They send me emails periodically. It's a big part of the process now. Every once in a while, I can drag Johann on. I really enjoy the process because I get to do research on different things that I might not have thought about. It gets me out of the normal daily routine. I get to talk to some interesting people. When I've asked different people to be on the podcast, their response is usually very positive. So I've been talking to some interesting people, and I find that it has become an interesting marketing tool. It's just really a fun part of my job. 

Dan Carreno, Change Finance:
Let’s stay on the marketing piece. When you say it's become an interesting marketing tool, is it because you have had people contact you from just finding the podcast, or is it something that you tend to share with referrals or prospects as a way for folks to understand your firm? Can you elaborate on how you work that into marketing? 

Kimberly Griego-Kiel, Horizons Sustainable Financial Services:
First of all, it goes out to every podcasting service everywhere. So people find it, and then they come to us. It's also on our website. Our clients listen to it. Strangers listen to it. Clients share it with people. Our guests share it with their network. So people hear it that way. We get a few referrals that way. It's also a great tool to educate our current clients, which I find incredibly important. One of the top important things about my job is to educate my clients. And I think some advisors think that they shouldn't educate their clients, but I believe educating your clients to have a good understanding of what their investments are doing is very important. An uneducated client is often a client who leaves because if they feel like they're not getting something from you, they're going to go to someone who will give them something. And I believe that education is a key piece. 

Dan Carreno, Change Finance:
Excellent. I appreciate the feedback there. We are going to be running out of time here in a minute. Is there anything else that you would like investors or financial professionals to know about Horizons? 

Kimberly Griego-Kiel, Horizons Sustainable Financial Services:
There's a couple of things that we're doing here that I think are really important. We have several options for asset management, not only for our clients, but for a number of RIA firms who have hired us to manage assets for their clients in ESG/SRI capacities. We have multiple options available for individual stocks, individual bonds, mutual fund portfolios. Some advisors choose not to manage portfolios themselves. We can do that. Whether you're a full SRI shop, ESG shop, or doing a little bit, we can help at a very low cost. 

Dan Carreno, Change Finance:
So sort of an outsourced ESG Chief Investment Officer? 

Kimberly Griego-Kiel, Horizons Sustainable Financial Services:
Exactly. We're doing that for four other firms right now and also for our advisors. 

Dan Carreno, Change Finance:
Well, we will wrap it up there. Kim, I want to thank you so much for being on today. It was such a pleasure to chat with you. If anyone listening wants to find the reports or any resources that were discussed on the podcast, you can go to change-finance.com. You'll find the podcast library under the INSIGHTS tab, and links to all of those resources are going to be provided in the transcript. And of course, if you have any questions or feedback for us here at Change Finance, you can always get in touch with us through the website. Kim, if folks want to find you at Horizons, where should they go? 

Kimberly Griego-Kiel, Horizons Sustainable Financial Services:
They can go to https://horizonssfs.com/ or they can email info@horizonssfs.com.

Dan Carreno, Change Finance:
Excellent. Thank you again. And to all those that are listening, we appreciate you tuning in, and we will be back soon with another episode of the ESG update.