Revving Up ESG Spending

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Almost a century after FDR signed the New Deal, a bill for $550 billion in new spending on infrastructure is working its way through Congress. The politicians in Washington may not agree on a lot of things, but a proposal to fix and build roads and bridges to spur the economy has found backing on both sides of the aisle.

Besides promising half a million new manufacturing jobs by 2024, the bipartisan bill is also meant to help with the climate crisis and promote equality. Here are some of the big ESG-friendly spending goals in the 2,700-page document that caught our attention:

• $73 billion to update the power grid to transport renewable energy
• $65 billion to expand broadband internet access
• $55 billion for clean drinking water
• $50 billion for climate change resilience
• $39 billion to modernize and expand access to public transit
• $21 billion for environmental remediation or cleanup
• $15 billion for a national network of electric vehicle (EV) chargers, electric school buses

Many analysts expect investors to rev their engines and prepare to buy stocks they see benefiting if the legislation passes, including EV stocks like hydrogen fuel cell makers. (Well, maybe it’s time to retire the word “rev.” That’s an internal combustion thing.)

The White House recently said it aims for zero-emissions vehicles to make up 50% of new vehicle sales by 2030, and Detroit’s Big Three automakers responded with similar targets of their own. And we know the US is not alone as other leading economies are speeding up (ha) their transitions to electric vehicles as well.

While clean energy is a familiar category in ESG conversations, the pandemic has underlined the need for digital access. Imagine what last year looked like for those who tried to learn and work from home without reliable connectivity. That's the reality for many Americans today.

The upshot? This bill could have a big impact on many individuals and the ESG movement at large.

ETFs vs. Mutual Funds

Have you ever asked people to define what a sandwich is? It turns out, depending on who you ask, tacos are our favorite type of sandwich. Sometimes things that share so many characteristics can still be (or at least feel) very different.

And so it goes for two common investment vehicles, exchange-traded funds (ETFs) and mutual funds. These investments are popular with first-time investors (and first-time ESG and impact investors) because they both allow investors to pool their money to buy a collection of different stocks, bonds, and other assets for a straightforward way to build a diversified portfolio right off the bat.

But they differ in some pretty important ways. ETFs are bought and sold on a stock exchange with no minimum buys. This low cost of entry is one factor that has recently helped new investors enter the market. Since ETFs are traded throughout the day like individual stocks, the price of an ETF can differ from just the combined value of the assets it holds. (i.e., if a particular ETF is in high demand, it could be priced above the underlying value of the assets being held in the fund). Mutual funds, on the other hand, can only be bought and sold at the end of the trading day and are priced at the net value of the assets they hold at the close of every trading day.

Another place of distinction is in fees. ETFs tend to have lower fees as mutual funds are more likely to be actively managed by a fund manager. There can also be different tax implications between the two.  

Depending on what you are looking for, there is likely a place for both ETFs and mutual funds in your portfolio. And, there are socially responsible investing options available for both. There are over 144 socially responsible ETFs traded in the US, and ETF.com tracks them so you can look at performance, assets under management, and more. If you’re looking for mutual fund options, check out NerdWallet’s lists of highest-rated and lowest-cost ESG mutual funds.

*Just as a reminder, those links are to help you see what’s out there — we’re not giving any investment advice here.*

An investing staycation

Most of us will not be investing in our own spaceships anytime soon. If your concerns are more Earth-bound (Virgo season is just around the corner), community development finance institutions (CDFIs) could be a good place to start your local investing journey.

In many ways, CDFIs are the original impact investors (investors who intend to create positive, measurable social and environmental impacts alongside a financial gain). Since the 1970s, these private institutions have offered affordable loans to spur responsible economic growth in lower-income areas. Through models ranging from traditional credit unions to venture capital funds, they lend to small businesses, microenterprises, nonprofit organizations, affordable housing developments, and other economic engines. Many CDFIs prioritize lending to businesses or organizations led by people of color.

Though CDFIs are funded primarily by public money and private funds, individual investors can also step in through platforms like C-Note — and given the robust rates of return, doing so can be an economic justice win-win.

Getting the inside scoop on long-termism

There is a growing body of research making it clear that companies with a long-term business horizon have higher and more stable revenues, company earnings, and market capitalization — both in the short and long term. These companies are also more able to identify and commit ample resources to strategic moves, which keeps them competitive.

And better yet, long-termism and ESG go together just like tacos on Tuesday. McKinsey data from 2019 showed that 57% of surveyed corporate leaders believed ESG programs create long-term value, and 83% expected ESG programs to contribute more share­holder value in the long term than they did at that time. There is even a new Long-Term Stock Exchange (LTSE) which highlights companies that have made a commitment to a long-term focus. They just landed their first two listed companies, and we will all be watching for more.

However, it’s not always easy to avoid the #GBBO “soggy bottom” of short-term thinking. CEO tenures and company life spans have become shorter, and 87% of executives and directors feel pressured to demonstrate strong financial performance within two years or less. So, how can we tell if a company is focused on the long term?

A good place to start might be with annual sustainability reports. Over 90% of all S&P 500 companies issue them annually, and they can be an opportunity to gauge progress on corporate commitments to long-term targets. Looking at these statements for the issues you care about can offer a deeper understanding of a company's ESG policies, practices, and specific actions they’ve taken to reach these goals. As the reports are written by the companies themselves, it’s always good to also review what third parties have said, but you're already an expert on this from reading the FWIW issue on measurement.

It takes work to be this forward-looking, but we’re hopeful that identifying long-termism can help each of us invest in the world we want.

Before you go -

It’s a year of unprecedented change in the job market — Forbes’ just published 2021 Best Employers for Women might be a valuable resource right about now.