Each week, Ellevest hosts Office Hours, an Instagram Live session in which our coaches answer your burning money and career questions with data, expertise, and strategies to help you get where you want to go, financially and professionally.

But not everyone can make a livestream in the middle of the day! That’s why we’re publishing the Office Hours transcripts (edited for clarity) here on the Ellevest Magazine. This week, Emily Green, Ellevest’s Director of Private Wealth, spoke to Jay Lipman, co-founder and president of Ethic, about how environmental and social issues are deeply entwined, and how not every “green” portfolio is truly built to reflect that. You can read their chat below. (Or, if you want, you can still hear / watch it for yourself here, too.)

Equity Portfolios for a Sustainable Planet: A conversation with Ethic co-founder Jay Lipman

Emily Green, Ellevest’s Director of Private Wealth: Hello, welcome. Just waiting a second for Jay Lipman to join. Hello, happy Monday, everyone. … Hey, Jay.

Jay Lipman, Co-Founder and President of Ethic: Hey, Emily, how are you doing?

I'm good, how are you?

I'm good!

Well, welcome everyone. Thank you for joining. I'm sure everyone here had emails full of commitments and pledges on sustainability or whatever green initiative someone was doing last week. I was joking with a friend on Friday afternoon that, that last three days and then everyone goes back to their normal emails and forgets about climate and the planet. But it's really important that we have this conversation.

At Ellevest, especially, specifically in the group I work in, our Ellevest Private Wealth group, we really do try to work to put our investments to work in a way that lives up to our clients' values. And so I'm really excited to have Jay Lipman here today, the co-founder and president of Ethic, to share some insights with us. So let's talk a little bit about your background, Jay, and then we can go into more on climate investing.

Absolutely. Emily, fantastic to be here. Thank you for kindly hosting. I think I probably received about 400 different emails about Earth Day, about different companies trying to sell me bamboo toothbrushes and various different types of recycled products. 

But to go into my background, I started many years ago back in the non-profit world, deciding that I was going to go and try and save the world myself. Booked a one-way ticket to Central Africa — as you know, you've heard the story — and ended up living there, working there, and ultimately, sadly, actually getting malaria. After getting very sick, I realized that there's only so much that I was going to be able to do on the ground in Central Africa, and that, with the privileges that I had, I was actually able to come back, go to university, study and understand how we can change the systems that can ultimately create more impact, in the way that I wanted to see that impact take place.

That ultimately led me to creating Ethic. And what we ultimately do here is try to use the capital markets, try to use investments … to address a lot of the biggest issues that, we feel, humanity faces today. So that is, obviously, largely environmental. A lot of various climate-related issues — which is very relevant for today's conversation — whether it's deforestation, clean air and water, various different natural assets that we're trying to protect, as well as those social things — the social elements that are a very big priority for us. And a lot of the partnership that we've had together with Ellevest has been based on our collaboration around various gender equity issues, racial justice, protecting vulnerable communities. And so, happy to be here. Happy to talk about any more of my background, but just excited to be joining.

Great. Well, I think many of us have probably seen the UN report this past year, the dire situation that we are really in when it comes to our planet. So Jay, why climate? And why now? Why should we focus on that?

Well, the IPCC report is, it's not a great vibe. What they're basically saying is in pretty unequivocal terms — and I think that's kind of the language they use — is that there is definitely going to be worsening damage to the planet that we are going to have to live through. The world is going to have to adapt to this changing environment, and as a result, we're going to see worsening weather events. We're going to see more drought, more flood, more wildfires — that's the bad vibe. 

But the reason that we talk about this conversation as it relates to investing is that there is hope, in that we can actually have an impact and change these things, utilizing the way that we invest. And this is where we get excited.

I know the conversations with you all where we collaborate — what’s so exciting is that [Ellevest’s Climate-Conscious Impact Strategy] is a powerful mechanism for addressing the issue around climate very importantly, because as investors, as consumers, as participants in society, it's very important that all of us understand the role that the biggest companies in the world play as it relates to this issue. 

Because I think that one of the biggest takeaways from Earth Day is that we get so many emails and so many ads [asking] us, “What's your carbon footprint? Are you using a bamboo toothbrush? Are you washing your clothing on cold water versus warm water?” That's a lot of companies telling us to look at our own behavior, when the reality is that the biggest companies in the world are dramatically more impactful to this issue than we are.

And while our personal footprint is very important, if we want to address this issue, it is crucial that we change the way that the biggest companies in the world act as it relates to climate. I think the statistics are something along the lines of 100 companies alone are responsible for about 71% of the emissions since the dawn of the industrial age. And so if we can get our heads around the fact that we need to change those companies in order to address this issue, then it makes our portfolio a very interesting and exciting opportunity, for all of us to use our voice, as investors, to change that behavior.

Yeah. It's interesting, I was talking to a woman earlier today in the context of International Women's Day, and she was noting that, on International Women's Day, she got emails from every financial firm about their diversity, and “Look at all these female fund managers.” And then she's like, “I got the same email almost two weeks later, and there wasn't one woman on the page.” So she's like, "Oh, I got the one email on the topic." I think it's very similar to what we saw last week [with Earth Day]. And I'm sure we're not going to be getting any of those emails this week, because the time has come and gone, and their marketing teams have already looked at it.

So let's talk a little bit about interconnectivity. I know this is a topic near and dear to your heart. We've always thought about this together. As you mentioned, we've partnered together on our gender- and racial justice-focused portfolios. And we've always taken a lens focused on climate within those portfolios. Now we're launching portfolios even more focused on this. But really, how do you think about that interconnectivity? In that it's not climate, it's not just carbon emissions? Climate is not just fossil fuels — climate is so much more.

I think, as you noted, it's something that I get very passionate about, because it does demonstrate this interconnectivity — how this issue is going to affect so many of the other issues that we care about. And I know that a lot of the conversations we have are about gender equity, are about racial justice, are about these systemic issues. The reality is, and very sadly, the impacts of climate change are going to be most felt by the most vulnerable communities, both in America, but also globally. And, in many cases, by the individuals and by the communities that have the least role in actually contributing to the climate crisis. 

But specifically in the United States, we look at an issue like climate change — one of the biggest impacts that gets talked most about is these heat waves, which are becoming more frequent, more deadly, and are having a more damaging impact on certain communities than others. 

And we see this in what happens in cities, versus suburban or more rural areas, because of what's known as the heat island effect. So as climate change gets worse, what we see is cities specifically — especially the inner city areas — getting even hotter than the [surrounding] areas and especially [hotter than] the suburban areas, which has a bigger impact on those communities that are more likely to live in those areas. But on top of that, because of these historically racist policies like redlining that we've seen since the ‘40s, ‘50s, and ‘60s, it has meant that certain communities have actually not had the economic or political will to push certain industries out when they've tried to set up shop where they live. So for example, in some inner-city areas, you'll see higher levels of prevalence, or higher likelihood, of having industry — manufacturing, energy production, coal-fired energy plants. And who is it that's most statistically likely to live closer to those production facilities? It is minority communities and the most vulnerable communities.

So, if the world is getting hotter, what it's going to do is, it’s going to combine with that issue to create worse outcomes. And so that elevated level of air and water pollution that comes from living in those areas is going to be exacerbated and aggravated by increased temperatures. And what we've seen with recent data is that it actually has a disproportionate effect on the women in that community, especially pregnant women, because increased air pollution, water pollution, is going to be most felt by pregnant mothers and in natal outcomes. 

So the interconnectivity is so powerful to understand, because, for us, it's the most powerful way of explaining that this is something that impacts everyone. This is something that everyone has to understand, because the more you understand how it affects the people you care about, regardless of whether it's a climate change issue or a human issue, it is something that we all need to be part of solving.

Yeah. I mean, one of the things I know that you've noted to me, even a couple of years ago, is the clean water issue. And something that I would never think about — well, clean water, think about something like Flint, Michigan — clean water actually affects children, and their education, and then their development. [Usually] you think about clean water, you just think about our physical health very quickly — are people getting sick? But you don't even think about the development of actual children and society through that.

Yeah, I know. Specifically, it's, when you boil it down — not a good pun, not a good analogy in this instance, but — when you boil down what it is, the lead in drinking water, it's so easy to see the connection between industrial activity and elevated lead levels. But then that connection — to say, well, elevated lead levels, that comes from that production facility up the river, or comes from those multiple refineries in Louisiana — that makes so much sense. 

But when I understand that those lead levels are statistically shown to lower infant and adolescent brain development, versus peers who are growing up with cleaner water sources — then it becomes such a human way of understanding what lead in drinking water actually means. Because who doesn't want kids to have great opportunities? Who doesn't want kids to have the ability to develop educationally, but also develop their brains? And so being able to connect that human element, we think, is so important in getting everyone on board with understanding why these things are so important to solve.

Yeah, it's scary. Well, we talked a little bit about the “why” here. And I think [another] thing that's important is the “how” — how to invest in what else is out there. And when I think about sustainable investing, or ESG investing, or impact investing, or whatever we want to call it, climate is really at the forefront of impact investing, of ESG investing. That E part of ESG has always been the first focus, but I think we could both argue that that has not always been perfect. And there's things out that are doing good, and things that are probably not doing so well on this. And with the growth of impact investing, there's been a lot of what we could call greenwashing, and really putting marketing names to it. So what is different about the way that Ethic and Ellevest are approaching this together, versus how a typical ESG fund is?

Well, first off, we're not speaking ill of anyone. We don't think —

Of course, making an effort, taking a step is better than taking no steps.

Yes, but we don't think that there is anyone scheming in a boardroom saying, "Let's sell people bad products!" But the reality is, certain structures, or certain mechanisms for distributing investments, are less flexible, and less able to actually respond to investors’ needs, because of the way that they're built. And that's one of the things that we see with this topic of greenwashing, especially in investing. A lot of the strategies where the intent may be positive, the nature of the structure of the ETF vehicle they're utilizing, or the nature of what it is that they're trying to ultimately sell, is a very one-size-fits-all model. So they may say that it's a climate strategy. They may say that it's “seeking [to address] certain issues.” But when it is meant to meet every investor's needs, what you’re going to get is almost a race to the bottom, as it relates to the impact that's being had.

And that's what's so different about the Ellevest strategy: You have such high standards around what you define as “impact.” It is not trying to meet the lowest common denominator as it relates to impact. You're going for those clients that do actually prioritize these issues. And the way that we think about things at Ethic is, you cannot build a good investment strategy or investment product without exceptionally good data. Because it's one thing to know the impact you want to have; it is a completely different thing to have the level and the quality of data to be able to inform which companies are actually aligning with the issues that matter to you, and which are not. That's why we spend so much time focusing on the quality of data, the different data sources that we have, and importantly, looking at it from a level of interconnectivity, looking at it on a systemic level.

With regards to a typical ESG strategy, as you said, so many of those strategies will say, "Oh, well, we're looking at it from a carbon perspective." And as a result, they remove a few oil and gas producers, but is that actually thinking about what it's going to solve the climate crisis at a systemic level? Not really. You've got to look at these underlying components, which are a big part of the Ellevest strategy. Things like air and water quality, things like deforestation. Why is it that we care so much about deforestation as it relates to climate change, where it might not be necessarily immediately directly impactful in that it's not just oil and gas companies? Well, if companies are exacerbating or accelerating the deforestation of highly biodiverse areas of forest land in order to make them into beef grazing land or palm-oil plantations, not only are they preventing that forest land from continuing to absorb the carbon that we need.

The Amazon is the lungs of the world because it absorbs so much carbon. But when they demolish that forest land, or when they burn it down, they're releasing carbon that's been stored for hundreds or thousands of years back into the climate. Which means that in order to solve climate change, we have to look at these things at a systemic level. We have to say — well, not just the obvious, but what's really intuitive here. And for that, we need to see which companies are exacerbating issues like deforestation — which companies are profiting from issues like deforestation? And let's look at those companies.

And the final example that I give — which I think is so powerful for, especially people on this call — is, “Who are the institutions that you think have nothing to do with this issue, but are actually facilitating it in a massive degree?” And for that, we have to look at some of the biggest financial institutions in the world. Many of whom, to your point, are actually talking quite publicly about sustainability, about climate change, but on the other side of the business, are using tens of billions of their clients' dollars, or deposits or whatever that capital is, to actually fund new fossil fuel projects. And so you've got coal —

I think it's the 30 largest [asset] managers have $550B going into oil, gas expansion plan.

And its expansion — that's the crazy thing.

Yeah, not just to keep it going — new.

[The industry] is looking for new leases. It's looking for new exploration. It's looking to disrupt existing areas of biodiversity. It's not even not what we don't need to be doing. We need to be stopping the existing plants; we don't need to be adding more. And so it's exactly what we need to be looking at to understand how to solve this issue, and not just saying, “We're going to remove a few oil and gas companies,” — [instead] saying, “How do we want to solve this?” And that's what is so different about the Ellevest strategy.

Yeah, I think it's important. When I think about sustainable investing and making a difference, it's important to not only look at what you're investing in, but who you're investing with. Because if you're investing in a green or sustainable strategy with one of those partners who is [among] the largest lenders to fossil fuels, or they are one of these 30 large asset managers actually having $550B invested in oil and gas, you're probably having your money that's trying to do good being canceled out. So, on that note, Jay, what should we be doing? Any positive notes that we can end on?

Yeah. I think that there's something that all of us can be doing. And I know I started the call by talking about our personal footprint and the corporate footprint, but we need to be using every single lever that we have. We need to be using our own decisions with regards to consumption and philanthropy, and the way that we shop, and the clothes that we buy, and those things. But the investment portfolio is such an important lever to change the behavior of the biggest companies in the world. 

And we're already seeing that impact take place. I think that, for people listening in, the actual, tangible, next step is to figure out what it is that you're actually trying to prioritize in your investments. What are the most important issues to you? If it is climate, then don't just go and look at a strategy that says “climate” or “low carbon” on it. Actually think about, “What's going to systemically move the needle on this crisis?” And as a result, “What's going to mitigate some of the risks that exist in your portfolio?” Because climate risk is financial risk. And if you're invested in companies that are not adapting to a changing planet, that we know is changing, then you've got risk embedded in your portfolio that you're not considering.

And so the next step of what I'd say, which is an important step for every investor to take as they think about impact, is “get transparency.” Get a clear look of where your money currently sits, whether it's [a] 401(k), whether it's money with an advisor. This is something that Ellevest does very well — you can give clients an x-ray of their existing portfolio through the health check, [which] lets them see exactly what's in their portfolio that does fit their values, and what doesn't, and then that gives you a good look of where you're starting from. Because if you know the impact you want to have, it's really important to know where you're starting, to know how you get there. And so that transparency is so important.

Yeah. I always like how you put it, it's full-information investing. And it's just so true. If you think about investing today, traditional investing is investing with half the information. We invest with financial information, and who would ever say, "I don't want to know everything when I'm making an investment"? And so taking this lens is not — you're not trying to get concessionary returns to do good, you're actually trying to probably try to find some competitive, if not looking for excess, returns, from just having all of the information in all of these companies who are actually trying to mitigate their risk.

And that risk exists in so many different forms and with climate risk, this is what's so exciting about the SEC's new proposed climate regulation: They are now [proposing to] enforce that companies talk about this. [They would] have to actually demonstrate what they're doing around it. So it's now hopefully going to be much harder, if this is passed into law, for a company to say that they're sustainable. They now need to demonstrate how they're actually trying to achieve those net-zero goals and net-negative goals. 

And so all of that essentially manifests itself in data and information that investors can utilize if they want to be intentional about it. But to your point, there's a lot of portfolios out there that are simply ignoring a lot of information, which we know to be an important factor in understanding risk and opportunity. And if we can leverage that, then it not only seeks to mitigate that risk and to drive towards more opportunity, but it gives us more alignment around the issues that matter to us most.

Yeah. I truly believe if each of us moved our money into the values that we believed in, we could change the entire world. It would change how companies act, because the cost of capital for companies would be so high, they would be forced to change. And so it may feel like such a small act for you to move your money into things that are aligned to your values, but it does make a big difference if we all do it together. 

So on that note, thank you, Jay, for joining us. Thank you all for joining us. If you'd like more information, you can find more at ellevest.com/pwm. And there's actually also an article about these new climate portfolios on our Magazine. So check the Magazine, and you can read more there. All right. Thanks Jay. Have a good one.

Emily, thank you.

Disclosures