Magazine

How We Created the Climate-Conscious Impact Strategy

By Emily Green

Here at Ellevest Private Wealth Management, we’re always looking for new ways to help our clients invest for impact. Back in 2019, we rolled out the Ellevest Intentional Impact portfolios, equity portfolios that allow clients to invest in companies that seek to make the world better for women+. Then in 2020, in an effort to address the fight against systemic racism, we adjusted that strategy to more actively screen out companies that don’t meet our standards for racial justice.

But we’re not done yet. As in a recent UN report, world leaders and scientists warn that we need to act now to combat climate change. And with those dangers materializing more quickly than ever, our clients have been looking for ways to help combat this crisis through their investments. At Ellevest, we know well the power money has in pressuring companies to adopt and maintain ethical practices. So Ellevest Private Wealth Management is proud to expand its product offerings once again, with the Ellevest Climate-Conscious Impact Strategy.

Built with the help of our partners at Ethic and designed to reward genuine environmental transparency, the new Ellevest Climate-Conscious Impact Strategy is a environmentally focused public equity portfolio that gives clients a powerful way to invest for a cleaner planet — by actively screening out companies whose business practices don’t meet our standards for environmental stewardship, all while still seeking market returns.

How it works

Much like the Ellevest Intentional Impact portfolios, the Ellevest Climate-Conscious Impact Strategy is guided by different pillars — but these five are related to environmentalism — from which we developed the criteria to determine whether to include a company. They are:

  1. Clean Water: Does this company promote safe and plentiful access to clean water?

  2. Climate Change: Does this company promote a low-carbon economy?

  3. Sustainable Agriculture: Is this company committed to building a resilient food system?

  4. Pollution: Does this company promote cleaner air, land, and water?

  5. Deforestation: Does this company promote sustainable stewardship of the world’s forests?

Under these five pillars, we narrow potential assets further using 13 subcategories (sub-pillars, if you will): Water, Waste, Fossil Fuel Reserves, the Fossil Fuel Industry, Risk, Biodiversity, War, Product Quality, Greenhouse Gas Emissions, Media and Advertising, Exploitative Products, Working Conditions, and Human Rights. Because of the stringent nature of these 13 subcategories, the Ellevest Climate-Conscious Impact Strategy offers those looking to invest for a greener future an accountable, transparent option.

Why these pillars matter

The effects of climate change are all around us, and they’re getting more urgent by the day. In 2019, storms, floods and other extreme weather events displaced more than 13 million people across Asia and Africa. By 2050, it’s estimated that six billion people will live in areas that suffer water scarcity for at least one month per year. In that same period, global water demand is expected to increase by 20–30%. And clean water is just one of our five pillars.

Investing in companies that have tangibly committed to environmental sustainability is also a good move from a business perspective. Of course, ​​when you exclude certain companies or industries, you’ll miss out on any returns they do post if business is strong. But while nothing’s guaranteed in investing, the data overwhelmingly shows that ESG investments (the first letter of which? Environmental) drive better financial performance over the long term, due to better risk management and downside protection. By filtering for these climate-related pillars, the Ellevest Climate-Conscious Impact Strategy seeks competitive returns while also outperforming other funds on sustainability.

Using your power to invest in the future — yours and the planet’s

We all have the power to make a difference, in the everyday decisions we make, but also in the way we invest. The time to make a change for the environment was yesterday — but by investing for impact, we can still put our resources to work to build a better future for everyone.

Think your investments could be working harder for sustainability? Reach out to your Ellevest financial advisor today to learn more about the Ellevest Climate-Conscious Impact Strategy.

Click here to contact an Ellevest financial advisor in your area.


Disclosures

© 2022 Ellevest, Inc. All Rights Reserved.

The Ellevest Climate-Conscious Impact Strategy is a separately managed equity account that is sub-advised by Ethic Inc. Ethic Inc. is registered as an investment adviser with the Securities and Exchange Commission (“SEC”) and is located in New York, NY. Registration of an investment adviser does not imply any level of skill or training. Information pertaining to Ethic Inc’s registration or to obtain a copy of Ethic Inc.’s current written disclosure statement discussing Ethic Inc.’s business operations, services and fees is available on the SEC’s Investment Adviser Public Information website –www.adviserinfo.sec.gov or from Ethic Inc. upon written request at support@ethicinvesting.com.

Information provided herein is for informational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Any subsequent, direct communication by Ethic Inc. with a prospective client shall be conducted by a representative of Ethic Inc. that is either registered or qualifies for an exemption or exclusion from registration in the state where a prospective client resides. Information contained herein may be carefully compiled from third-party sources that Ethic Inc. believes to be reliable, but Ethic Inc. cannot guarantee the accuracy of any third-party information.

Ethic Inc. does not render any legal, accounting, or tax advice. Ethic Inc. recommends all investors seek out the services of competent professionals in any of the aforementioned areas. Ethic Inc. cannot provide any assurances that any investment strategies, simulations, etc. will perform as described in our materials. ALL INVESTMENTS INVOLVE RISK, ARE NOT GUARANTEED, AND MAY LOSE VALUE. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY.

Ethic Inc. and your adviser’s firm are independent entities and neither is the agent of the other. Your adviser is not an employee or associated person of Ethic Inc. and has no authority, express or implied, to act for or obligate Ethic in any manner whatsoever. Account portfolios are prepared by Ethic Inc. based on information provided through your adviser.

As sub-adviser, Ethic constructs and manages portfolios of individual stock positions benchmarked to an underlying index and customized to specific values criteria The sub-adviser seeks to deliver equity market returns that track a designated equity benchmark (domestic and / or international) while seeking to outperform on impact across key sustainability criteria as defined by Ellevest and / or the client.

The Ellevest Climate-Conscious Impact Strategy is expected to comprise around 300 US-listed equities (including ADRs as applicable) chosen through an outsourced multi-factor optimization software and sustainability data science developed by Ethic.

The primary benefit of the Ellevest Climate-Conscious Impact Strategy is that it provides broad market exposure with a goal of keeping average tracking error low over the long term, less than 1.75%, while divesting from some of the companies that do not meet the strategy’s sustainability parameters. The tracking error may be meaningfully higher if the equity allocation is transitioned over time due to tax or other considerations or if the customized sustainability criteria specified by the client restricts the investable universe of securities.

Some of the key risks for investing in the Ellevest Climate-Conscious Impact Strategy include:

Market Risk

As with all publicly traded securities, the SMA is exposed to market risk, the risk of losses arising from fluctuations in market prices caused by factors independent of a security’s particular underlying circumstances.

Active Risk

Although the SMA is constructed to minimize tracking error relative to its benchmark, there is no assurance that the strategy will generate market returns within the estimated tracking error. Because the SMA is designed to capture investment returns associated with gender and racial diversity, and high environmental and governance standards, the SMA may exclude, overweight, or underweight individual companies and/or sectors of the market. As a result, the SMA will not fully participate in the market returns of a general investment strategy. The SMA may over or under perform a general market strategy.

Sub-Adviser Risk

The success of an account’s investment through sub-advisers is subject to a variety of risks, including those related to the quality of the management of the sub-adviser and the ability of such management to develop and maintain a successful business enterprise, and the ability of the sub-adviser to successfully execute, operate, and manage the intended strategy at or below the target tracking error.

Business Risk

The fund’s strategy relies on key personnel, their expertise, relationships and networks. A loss of one or more key personnel may adversely impact the strategy.

The Ellevest Climate-Conscious Impact Strategy gives clients access to broad equity market exposure. The target tracking error for the Portfolios is currently under 1.75%. Reporting on the Ellevest Climate-Conscious Impact Strategy will be provided to clients no less than annually.

The minimum investment in the Ellevest Climate-Conscious Impact Strategy is $250,000. In addition to Ellevest’s advisory fee, the client will pay 0.30% of assets managed to the Sub-adviser.

All opinions and views expressed by Ellevest are current as of the date of this writing, for informational purposes only, and do not constitute or imply an endorsement of any third party’s products or services.

Information was obtained from third-party sources, which we believe to be reliable but not guaranteed for accuracy or completeness.

The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.

The information provided does not take into account the specific objectives, financial situation, or particular needs of any specific person.

Forecasts or projections of investment outcomes are estimates only, based upon numerous assumptions about future capital markets returns and economic factors. As estimates, they are imprecise and hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Diversification does not ensure a profit or protect against a loss in a declining market. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

The practice of investing a fixed dollar amount on a regular basis does not ensure a profit and does not protect against loss in declining markets. It involves continuous investing regardless of fluctuating price levels. Investors should consider their ability to continue investing through periods of fluctuating market conditions.

Investing entails risk, including the possible loss of principal, and there is no assurance that the investment will provide positive performance over any period of time.

Emily Green

Emily joined Ellevest after seven years with JP Morgan, where she focused on the needs of high-net-worth families. Today, she’s a financial advisor on Ellevest’s Private Wealth Management team, working with clients to help them develop personalized long-term investment plans that align with their goals and values.