A Season of Gratitude & Giving

As we approach the holidays and gather with family, feelings of gratitude and sharing often arise. In thinking about ways to give back, we’ve invited Andy Garrison to talk about how he’s helped his clients with impact investing. For those who are investing already but would like to make a difference while doing so, Andy shares how to think about putting dollars to work in a way that shapes the community and is socially responsible.

George Fernandez: Thank you for downloading another episode of Your Life, Simplified. My name is George Fernandez, and I’ll be your host for this episode. As we work with our clients as fiduciaries and as advocates, we help them make very important decisions. Investing, of course, it’s a big part of what we do with our clients, but more importantly, it’s investing with a purpose. It’s investing based upon what’s important to our clients, helping them reach those important goals, but the way in which we invest is also important too. So today, we have Andy Garrison from our Overland Park office, senior wealth advisor and CFP. Andy, welcome to the show.  

 Andy Garrison: Hey, thanks for having me. Glad to be here.  

George: This particular topic we’re talking about today is really about investing with an impact. And there’s a lot of different ways that we can do that. Investing with an impact from a socially responsible perspective, from a company perspective and how they’re actually integrating with society, so to speak, as well as making an impact with the dollars that we are investing with these companies. That’s the topic we’re going to talk about today. I appreciate you being here to help us walk through this particular topic. It’s one that’s has fascinated me for some time. There’s one particular thing that I thought was really interesting. The very first time I ever heard about this topic, I didn’t realize that there were these nuances that exist with it. I’d like to start there to make sure that everybody understands. We talk about impact investing or socially responsible investing or ESG. We use terms like that. What do those things actually mean?  

Andy: Yeah, I think that makes perfect sense. It’s certainly one of those things that, as it’s growing is a concept, more and more people are latching onto it. And the neat thing about it is it’s completely personalized, right? And we think about impact investing or investing with our values or socially responsible investing or environmental, social, governance, all those different terms come together. How do we decide what’s the best way to invest our funds so that, ultimately, they’re aligned with our values? And when we think about investing our funds, whether it be for a goal like retirement or a kid’s education or some charitable cause down the road, we’re very focused on the purpose of those funds. When we’re talking about impact investing and socially responsible investing, we also take it to another level and become focused with what are the types of investments we’re making to get to those goals and are those things we either agree with or are they things where we see the world going? Are those areas that we might have an impact in?  

George: Yeah, it’s a really great point. As an investor, you have personal feelings about a particular activity. I think one that we see often is alcohol or firearms. This is really common. And if you have very strong, closely held beliefs about that, the socially responsible investor would say, “I want to avoid investing in companies that provide that or that do that.” There’s also kind of another side of that from the ESG perspective as well, isn’t there? It’s really more from the perspective, the company, how much are they actually integrating into the community or something along those lines? Can you help us understand that a little bit?  

Andy: Absolutely. I think just a little bit of history makes sense here. If you look at where socially responsible investing evolved from, how do you actually implement it and think about it, it started with what we would call negative screening today. That’s just a fancy term to saying there are certain types of companies that folks didn’t want to own, whether it was like you mentioned alcohol or tobacco or firearms or something controversial. The initial approach to socially responsible investing was saying, let’s screen those out, right? We just don’t want those in an investment portfolio. Very industry-based, right? What is the core function of that company?  

And now fast forward, many years as times evolved, there are certain companies that individuals may not agree with that they want out of their portfolio. So, we can look at doing that, making sure they’re not investing in certain ones, but now we’re also looking and saying, what are these companies doing overall, not just their core business function, but how are they operating in respect to the environment? For example, if someone’s concerned about the environment, they may want companies that have good track records of reducing their carbon footprint or not dumping chemicals in a lake, right? As simple as that…or making sure they’ve just got good stewardship across the board.  

Now we’ve seen companies start to integrate and say, “Hey, outside of our core business function, here’s what we believe about certain things.” And so we’re seeing companies starting to share some values that some folks grew with, some that others don’t, but they’re starting to operate based on those values too. The two or the three big umbrella areas are the environment — what’s going on in the environment, social issues — whether that’s workers’ rights or supply chain issues, and then governance, which is basically how well do they keep their books, how diverse are their boards and those elements.  

George: That’s what that’s really interesting. So, ESG comes in, right? The environment, the social and the governance. Okay, good. I’m learning here. I appreciate that. I’ve heard these words used, but I haven’t quite understood how they all kind of work together. When you look at ESG or the environment, the social and the governance piece, how do we know that those companies are a good fit for that investment type?  

Andy: It’s a great question. And it kind of goes back to everybody’s different. That’s one of the ways I love the structure that we have. It all starts with understanding clients’ values. And while, George, you and I may have a very good idea of what makes a company responsible in a lot of areas, there may be other areas that you’re more passionate about than I and vice versa. And so we always start with the client and say, “What are we trying to accomplish with the portfolio?” Not only is it to perhaps fund retirement or fund a business distribution or charitable inclination. Whatever it may be, how do we want to reflect our values in that portfolio? So, we start understanding what is most important to each client. Then we look and try to identify companies. We may not want to own companies that are completely opposite of some of those values, but then we’re also looking, saying, “Well, what companies out there maybe have a very good track record overall of moving in that direction?” Right? If someone’s really concerned about having good diverse representation on a board, for example, we look at those companies and say, “Well, what companies are moving in that direction? Who’s actually making proactive effort in that?” And then we’re able to first and foremost, make sure we feel they’re good financial investments. But at the same time consider if we are able to bring those other elements in that match those client values as well?  

George: Now, when you say composition of the board, what exactly do you mean by that?  

Andy: Yeah, so most companies, almost all publicly traded companies, have a board of directors and they act as the oversight for the company. The big movement now is to make sure that the board members somewhat represent the ultimate diversity of the client base or customer base of most companies. There’s a lot of logic behind that. I would argue that you want to have people that understand your core market. As people are thinking about looking at how companies are made up with their boards and the representation they have on there, they’re really focused on creating that diversity and that expansion as well.  

George: I think that’s really interesting because we hear stories, and if you go out and read Investment Magazine and stuff like that, they always talk about the fiduciary responsibility of the board. And do you see that that has caused an approach from companies? Do you see that change? I mean, obviously there’s still fiduciaries nothing’s changed there, but do you see their response as a fiduciary has changed as well?  

Andy: I think it has in a little bit different of an angle. If we go back many, many years ago, a few decades ago, the number one responsibility for a company was to make money for shareholders. So, what you’ve seen as socially responsible investing, impact investing, all these different terms have come and become more and more popular. You’re seeing that recognition. That perhaps there’s an opportunity for these to actually increase shareholder value. And so where you’re seeing the responsibility of the board, look at becoming more diverse and trying to represent their client base and their customer base, you’re starting to see a lot of these companies recognize that and say, “Hey, not only may it help our responsibility to do what’s right for the company, but it may actually help our shareholders too if we’re able to better understand our total markets and what they’re looking for, what they need, what’s important to them and then deliver a product and services in a way.”  

George: It’s that perspective of “We’re doing what’s best for the community, what’s best for the customer, what’s best for the world.” You could argue that it has a positive impact on the outcome that they have as a company as well. I think is what you’re saying.  

Andy: Absolutely.  

George: So that’s really interesting. So, with that in mind, has that changed the risk level for these investments? Are they the same as any other investment? Or how does that come about?  

Andy: Yeah, so it’s really interesting. I think there’s two ways to look at risk. If you’re thinking of the pure investment professional way of standard deviation and all these crazy terms, all companies that are similar, are going to operate in a similar sense from a risk perspective. But if you take it a step farther and you look at it from the business risk that a lot of these companies have, that’s, I think, what you’re starting to see change. And going back to the environment, for example, just for a moment here, if a company is really focused on producing goods that don’t pollute, right, or they’re focused on reducing their carbon footprint, there’s a lot less chance of regulatory hurdles coming up for them, right? Tougher regulations, fines for issues going on. If on the social side of things, they’re taking really good care of their employees and they’re scoring well and ranking. Well on the social side, their employees are often going to be more productive as well. So you’re seeing, I think, that the risk, the core business risk of companies, you’re seeing these organizations recognize that by focusing on these different elements of social responsibility, they can expose themselves to less broader risks and perhaps have longer tenured and happier employees and all those things that might go into making a business more sustainable itself over the long term.  

George: It’s very intriguing. With that in mind, have you seen companies who have, that were less ESG oriented, years ago, but now are more ESG oriented today? Have you seen people make the shift or is it more new companies that are starting off out of the gate like this? 

Andy: I think that’s an excellent question. The way I look at it is from two angles, one specifically for the investors’ perspective on it, but also with companies, what you’ve seen is socially responsible investing. All of this has become a bigger and bigger perspective in the market. You’re seeing companies recognize, “Hey, if people are looking into this and people are interested in it, we need to start being interested in ourselves, right?” If your core market is starting to push you in a certain direction, you start moving in that direction.  

The other element that we see when we look at companies from an investment standpoint, is we look at them and sometimes there’s poster companies out there to your point, we won’t name any names, right? But if somebody believes X, Y and Z very strongly, there might be a company that’s just perfect in all those categories and checks all the boxes. And that’s wonderful. And you may want to own that if it’s a good investment. However, on the other side, there may be companies that if you were to say, rank them on a scale of one to 10, maybe they’re a five right now — right smack in the middle. You look at it as a snapshot and say, “Hey, you know, it doesn’t really match everything perfectly, but the year before it was a four, right? The year before it was a three and so on. And they’ve put new policies in place. They’re moving in different directions, and it just takes time. But they’re making a lot of businesses visions that are pushing them, making progress toward that goal.”  

Those seem to be what we’re hearing from clients that a lot of those types of companies are the most intriguing look at investing in because A.) perhaps they may not be as recognized as leaders at this point, but B.) for a lot of folks, I think it feels good to be in the progression of a company getting to a better place.  

George: When you implement this for clients, this strategy or approach to investing, are there certain things that you have to do in order to find companies like this? Or is there a scoring system? Is there a particular tool where I click this box and it tells me their ESG score? How does something like that at work? 

Andy: Yeah. Great question. So, there’s becoming more and more service providers out there providing all kinds of data, and we’re very blessed as advisors at Mariner Wealth Advisors because we have a wonderful investment team and investment committee that can dig through all of that. And there’s numerous groups they can subscribe to, to provide that. One of the things we found though, as we’ve continued to build portfolios for clients in this area, is a lot of the rating agencies that are rating companies based on their social responsibility scores, do a great job, but oftentimes they’ll say something different, right? They’ll have a different perspective on whether a company’s responsible in certain areas. Then we’ve also found that it can sometimes look in the rearview mirror and say, what has the company done? And so one of the things that we like to do is just keep up with the companies we’re invested in by looking at everything from news feeds to press releases to what’s changing as far as their upper level management and even social media posts to see what people are saying and where they’re trending in that way.  

George: So, at the big picture or bottom line, you’re working with our specialist here internally that can help you find those. Do you have clients that actually bring you companies to look at as well and say, “Hey, I heard about this company over here. This is what they’re doing. Can you take a look at it?” Do you do that frequently as well?  

Andy: Definitely do. We get a lot of times for clients are themes, meaning, this is really important to me. For example, I was just chatting with a client this morning and his focus is making sure the company he’s invested in support media in a way that doesn’t harm children. He described that in a lot of really interesting, unique ways. So, he’s saying, “How can we build a portfolio around this?” I shared a couple of things we can do, but I also asked him, “Tell me some companies you think do a really good job at that, right?” And so that we can use some of the companies they bring to us as a foundation for looking at others.  

George: That’s a really great thing because we talk a lot here internally about the importance of knowing who our clients are, knowing what’s most important to them, what’s most important to them as it relates to what’s happening with their money. They are investing with an impact. They’re investing based upon those conditions and knowing who they are. What you just said gives you an opportunity to discover things that you can then apply to other clients. What other things have we not talked about in regard to ESG, SRI, impact investing, that you think would be important for our listeners to know?  

Andy: I think the big thing is understanding that it’s here, and I don’t think it’s going away. That doesn’t mean that everybody needs to jump on the bandwagon right now, but it is something to consider and actually starting to see. I was actually chatting with one of our investment team members the other day and he was telling me, that as they look at investments without the socially responsible lens, they’re actually starting to pull in some of the socially responsible lenses they use because it adds to a deeper analysis of companies. So, I think there’s going to continue to be more and more demand from our clients, from all of us as consumers, moving companies and investments in that direction. But I think you’re also starting to see a new trend of a recognition that a lot of these elements, even if it’s not a core purpose of how you might invest in a company, they still serve as a really good foundation for understanding what a company does, what their businesses are, what risks they might be exposed to in other areas as well.  

George: Yeah. That’s a really interesting point because as you go through a year and a half, I think you described this a little bit earlier, you have five companies you’re looking at and they’re all very similar, and the way that they work and maybe their scores, if you will, in a traditional technical analysis, they might all be very similar as well, but you might be able to call out one like this, and then you’re proactively looking for opportunities like that with your clients. That’s important to our clients to understand that we can look at this proactively so they can be mindful of what’s important to them. So, with all of this said, we talked about the way in which we determined it, the history of it and everything else, and that it’s here to stay, I think as you described. Is it gaining momentum? Is it gaining popularity compared to where it was before? 

Andy: I think it absolutely is. You’re seeing that, and you’re seeing awareness leads everything, right? And as folks get more and more aware that it’s an option and it’s a movement going on, you’re seeing more and more people jump onto the proverbial bandwagon. I think it’s a great bandwagon to be on. You’re seeing more and more people jump on to it. And as that happens, it’s certainly increasing the popularity of it, which by the way the markets work, the broader markets, not the investment markets, it forces companies to look at things from a different angle of how they’re producing their products and services they deliver to their ultimate end users, which then of course, because we’re investing in those companies, influences how we look at what companies do.  

George: That’s a really interesting point. So that our clients can understand that by investing, you can have an influence directionally where you want to see some of these social changes take place — if you’re looking for a way the company runs itself, the way that they invest in the community and so forth. I think that’s a really interesting approach that you’ve described there. Any final thoughts you want us to make sure that we walk away with? 

Andy: I think my final thought actually ties in perfectly with what you just said. As consumers are really familiar with the concept of voting with our feet, right, or voting with our wallet. Now when we think about our investments, this is just the way of it extending that to voting with our investment portfolio and the assets we’ve built up for the goals we have for ourselves in the future.  

George: So that’s a way that you can enhance change. So, thanks again for being here today. And to all of you listening today, we really appreciate you being here. And so please let us know what you think about the episodes that we bring to you and how they’re affecting and simplifying your life. And you can let us know by sending us a note at [email protected].