INVESTING WITH IMPACT
Jul 30, 2020 08:01PM
By by Allison Gorman
In the limited, literal sense, “sustainable investing” (SI) is what it sounds like: putting your money into companies that promote or support good environmental stewardship. But SI encompasses broader territory too. It means aligning your portfolio with your values in a way that’s also financially sustainable.
That’s the area of focus for Jacey Cosentino, a Pensacola financial advisor with Morgan Stanley Wealth Management. She says she’s been captivated by the concept of “investing with impact” since 2012, when she read online about Morgan Stanley’s Institute for Sustainable Investing.
“I found it fascinating that one had the option of choosing compassionate capitalism over traditional methods of investing, which didn’t provide easy options for investors who wanted to help preserve our environment and our planet’s inhabitants,” she says. “Especially after the mortgage crisis of 2008 and 2009, I found it a breath of fresh air that the largest brokerage firm on the planet was choosing sustainability as the new investment frontier.”
At the time, Cosentino was a successful small business owner in Los Angeles. Her decision to switch careers—not just to become a financial advisor, but also to focus on SI—required a move back to her hometown of Pensacola, a return to college and a second bachelor’s degree.
It was totally worth it, she says, to be able to help people “do well by doing good.”
For investment purposes, “doing good” extends far beyond promoting environmental sustainability. For example, an investor might prefer to focus on issues of human rights, which, when addressed, can lead to more sustainable communities and countries.
The beauty of SI is that there are several ways to use your money for good, she says, and it doesn’t require a huge investment to make a positive change in the world.
“Investing with impact is not a one-size-fits-all approach,” she says. “The Morgan Stanley framework presents a spectrum of approaches that investors of all sizes can pursue.”
She lists four ways to make an impact through SI:
The goal here is to minimize bad impacts by not investing in companies or industries whose practices or values are antithetical to the investor’s. This is where an SI-focused financial advisor like Cosentino comes in.
“Restriction screening is a strategy we can use with a mutual fund, an exchange-traded fund, a separately managed account or a private fund to help ensure that it does not include certain companies or industries due to values misalignment or risk,” she says.
A current example of restriction screening would be avoiding investing in companies known to have exploited their employees or unnecessarily put their health at risk during the pandemic.
Environmental, Social and Governance Integration
Sustainable investors can identify the environmental, social and governance (ESG) issues that they care most about, and then proactively consider those criteria alongside financial analysis when determining where to put their money.
“Investors can use ESG as a screen, they can use it as a tool to engage with companies owned, or they can ESG data as a factor to filter the investable universe. Companies in the ESG universe score highest in their corresponding class on the Morgan Stanley Capital International scale,” Cosentino says. “ESG integration may be the sustainable investment option that people are reading about most. With ESG integration, an investor has the ability to remain diversified across all asset classes with a focus on choosing the best in each class, based on a certain metric system.”
Thematic exposure is the strategy of investing in companies or industries with significant exposure to a specific challenge. The challenge might be domestic or global, and the investment can span sectors, populations and geographic areas.
Popular themes include renewable energy, affordable housing and faith-based values, Cosentino says.
“This investment strategy is differentiated by micro-analysis, sustainability research and sector focus,” she says.
The goal of this investment model is to create a targeted impact. It directs funds to companies or industries that make positive social or environmental change through their business model, products or services.
“Impact investing is a private-market strategy—such as venture capital, private equity, a multi-asset fund or a hedge fund—focused on affordable housing in low-income communities, emerging consumers, workforce training, and so forth,” Cosentino says.
So to minimize objectionable impacts, someone interested in SI could choose between restriction screening, ESG integration, thematic exposure and impact investing, with thematic exposure and impact investing creating the most targeted impact, she says.
That’s a highly personal and individualized decision, she adds. As a financial advisor focusing on SI, she tailors every portfolio in consultation with the client, to find the strategy that works best for them.
“I love seeing people wake up to the fact that they can do what their hearts are guiding them to do and still seek market rate returns on their investment,” Cosentino says. “It doesn’t have to be a trade-off.”
Location: 850 S. Palafox St., Ste. 200, Pensacola, FL. For more information, contact Jacey Cosentino at 850-470-8033, 850-450-1988 or [email protected], or search Jacey Cosentino at Advisor.MorganStanley.com.