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Fennel’s Glossary of Financial Terms
5 min
30 May, 2023
By Fennel
At Fennel, we believe that individual investors should have access to as much data as the traders on Wall Street do. That’s why we’ve packed all that ESG, financial, and shareholder voting information into our app.
But, we also acknowledge that a lot of data can be overwhelming at times, especially when it comes to financial data. This data can tell you about the health of a company’s business or the performance of its stock, but it also involves understanding a fair amount of terms and numbers.
That’s why we’ve put together this glossary as a cheat sheet to help you remember what all the financial terms measure and mean. With this glossary, we hope you feel well-equipped to invest based on the metrics that matter to you.
(For a rundown on Fennel’s ESG data, you can read our explainer here.)
Annual Revenue
Annual revenue tells you how much money a company generates by selling its products or services over the course of a year. Fennel gets this information by looking at the net revenue or net sales that a company generated in its most recent fiscal year.
Revenue differs from profit because it doesn’t include the expenses that a company had to pay in order to generate that revenue. If you subtract a company’s expenses from its revenue you’ll get its net income or net profit.
Beta
Beta is a measurement that represents a stock or ETF’s volatility.
To measure this, beta compares how much the price of that security changes relative to the broader market on average. The market, which is usually represented by a benchmark like the S&P 500 or Russell 1000, is given a beta value of 1.0.
For example, if the security’s price tends to experience similar percentage changes as the broader market (on both up and down days), it’ll have a beta value close to 1.0. If the security’s price swings more wildly than the broader market, it’ll have a beta value greater than 1.0 — the higher the value, the greater the variance. But if the security moves less than the broader market on average, its beta value will be less than 1.0.
Change on Day
This measures how much the price of a stock or ETF has changed between the close of the prior trading day and where the price is currently. This change can be represented by either a dollar amount ($) or by a percentage (%).
Dividend
A dividend is a sum of money that a company pays out to its shareholders in regular intervals (often quarterly) as a way to share its profits.
If an investor is interested in collecting dividends, they may also want to know about a company’s dividend rate and dividend yield.
The dividend rate is the company’s annual dividend payment per share (as determined by the company). Sometimes, if you hear an investor talk about a company’s “dividend” in terms of dollars per share — as in, “this company pays a dividend of $1.22 per share” — they are actually talking about its dividend rate.
The dividend yield, on the other hand, is a ratio that describes how much the dividend pays out relative to that company’s share price (as a percentage). So, if a company’s share price is $10, and its dividend rate is $1.22 per share per year, the dividend yield is 12.2%.
Some ETFs pay out dividends too if the underlying assets in that ETF pay dividends.
Earnings Per Share (EPS)
Earnings per share is a calculation used to help estimate a company’s value. EPS takes a company’s net profits (which, as mentioned above, is annual revenue minus expenses), then subtracts the company’s dividends (also mentioned above), and then divides that total by the number of outstanding shares. Thus, this calculation gives investors an estimate of how much the company is earning per share.
The Fennel app includes both actual earnings per share, which uses company reported earnings from previous fiscal years to calculate EPS, as well as estimated earnings per share, which calculates EPS for the current and next fiscal year based on what analysts estimate earnings will be. (These analyst estimates are provided by FactSheet).
Enterprise Value
Enterprise value is another calculation that can help investors figure out how much a company is worth. A company’s enterprise value is equal to its market capitalization (the number of shares times the share price), plus the company’s debt and minority interest, then minus the company’s cash. It can be seen as slightly more comprehensive than market cap because it takes a company’s debt and in hand cash into account.
Last Price
This is a stock’s or ETF’s most recent share price, either from the current or most recent trading session at close.
Market Capitalization
Market Capitalization (often shortened to “market cap”) aims to calculate a company’s total equity value. It does this by multiplying the company’s share price by the number of outstanding shares.
Sometimes, investors classify companies by size using market cap. Companies are split into small cap (when market cap is less than $2 billion), mid cap (when market cap is between $2 billion and $10 billion), and large cap (when market cap is greater than $10 billion).
Open / High / Low
These are three different price measurements for the current, or most recent trading session. Open refers to the share price at market open. High refers to the highest value that the share price reached during the trading session. And low refers to the lowest value that the share price reached.
Price
This one may seem self-explanatory, but price refers to the current or most recent share price in US dollars. It’s often used to calculate other financial metrics, such as market capitalization or price-to-book.
Price-to-Book (P/B)
A ratio that is used to compare a company’s market value (the price that its shares are trading at) to its book value (the value of the assets on its balance sheet minus liabilities). P/B is calculated by dividing the company’s current share price by the most recently reported book-value-per-share.
P/B can also be calculated for ETFs by taking the weighted average of the P/B values for that ETF’s underlying holdings (i.e, stocks).
Price-to-Earnings (P/E)
Another ratio, price-to-earning compares the company’s share price to its annual earnings per share (EPS). Another way to think about P/E is to view it as how much an investor pays to get a dollar’s worth of company earnings. It’s also sometimes referred to as the “earnings multiple.”
P/E can be calculated as trailing P/E (which uses a company’s reported EPS from its most recent fiscal year), or as forward P/E (which uses EPS estimates calculated by analysts for the current fiscal year).
Sector
A way of classifying companies by the industry they operate in (or where their revenue comes from). The Global Industry Classification Standard (GICS) is responsible for classifying companies by their sector.
To learn more about the 11 different sectors, you can read our blog post here.
Theme
Another way of classifying companies based on the area they operate in. While sector can be seen as the type of business a company is, the theme has more to do with industry trends and the company’s area of focus. Themes may be more specific than sectors.
For example, Information Technology is one of the 11 sectors, but Cybersecurity is one of the themes listed in the Fennel app.
Total Debt to Equity Ratio
As hinted in the name, this ratio is calculated by dividing the total debt a company has by the most recent value of the shareholders’ total equity, and then multiplying by 100. This measurement can also be used to tell investors more about how leveraged a company is (since it compares how much the company owes in relation to its equity value).
Volume
Volume refers to the total number of shares that are being traded. Volume can be calculated for the current trading period (referred to as today’s volume), the most recent trading period, or can be averaged out over time. For example, Fennel calculates a security’s average daily volume by taking the mean of a security’s volume over the most recent 30 days.
Some investors look at a security’s volume as an indicator of its activity or momentum. It stocks are being trading more frequently, that may tell you more about the popularity of that stock, or if large transactions are being placed.
52-Week Range
The 52-week range tells you how much a security’s price has moved (roughly) over the past year. It’s calculated by comparing the highest price that security reached over the past 52 weeks (the 52-week high) to the lowest price (the 52-week low).
*ETF Terms*
Fennel allows investors to buy and sell both stocks and ETFs. While stocks represent shares of a single publicly traded company, exchange-traded funds (ETFs) act as a pooled investment, which can represent several different underlying stocks or assets.
Since ETFs differ from stocks, we’ve included a few terms that are used in the Fennel app to provide data about ETFs. Investors should consider carefully information contained in an ETF’s prospectus or, if available, the summary prospectus, including information about investment objectives, risks, charges, and expenses. You can request a prospectus by contacting customer support. Please read the prospectus carefully before investing.
Assets Under Management
Sometimes abbreviated as AUM, this refers to the total market value of all an ETF’s holdings.
Expense Ratio
ETFs don’t just appear out of thin air, they are usually created and managed by some organization. The expense ratio refers to the operating costs that it takes to manage an ETF’s portfolio (for things like management fees, marketing, distribution, administration, distribution, and other expenses). These expenses are then expressed as a percentage of the fund’s average net assets.
Number of Holdings
This refers to the number of underlying securities held in an ETF. Some ETFs consist of many different underlying stocks, others may have less, while some ETFs only have one (known as single-stock ETFs).
∙ ∙ ∙
The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Employing ESG strategies may not result in favorable investment performance. Securities offered through Fennel Financials, LLC. Member FINRA SIPC.
Expand your knowledge further
<p><em>With financial markets around the world still reeling from muddled efforts to curb a global pandemic, one financial notion seems to be gaining fresh support: ESG. However, much about ESG remains unexplored. Are ESG and risk management practices related? How can ESG be used to benefit organizations and investors from a risk standpoint? Does one of the three ESG pillars play a bigger role in terms of generating financial returns, utility, and risk management?</em></p>
<p> </p>
<p>Some investors have a hypothesis that ESG investments generate stronger, more sustainable returns over the long term, and this has been exemplified in the past couple of years. ESG investments, indices, and companies that keep considerations of the three factors at the forefront of their culture have bounced back higher than unbothered counterparts; for example, the S&P 500 ESG Index has beat the S&P 500 Index <a href="https://www.spglobal.com/spdji/en/indices/esg/sp-500-esg-index/#overview">since the first market slump in early 2020</a>, sustainable bonds have seen <a href="https://www.reuters.com/business/sustainable-business/global-sustainable-bonds-see-record-issuance-jan-sept-2021-2021-10-12/">record issuance in the year 2021</a>, and organizations with good ESG ratings <a href="https://www.cfachicago.org/wp-content/uploads/2020/10/Blog_-Managing-Risk-with-ESG-Investing.pdf">have displayed strong financial resilience</a> since the economic downturn.</p>
<p>How can this phenomenon be explained? The answer lies in the fact that <a href="https://www2.deloitte.com/ie/en/pages/financial-services/articles/esg-risk-management-framework.html">ESG can work as a risk management strategy</a>; not just in financial terms, but also in view of management conditions and meeting regulatory requirements.</p>
<p>A <a href="https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Strategy%20and%20Corporate%20Finance/Our%20Insights/Five%20ways%20that%20ESG%20creates%20value/Five-ways-that-ESG-creates-value.ashx">report published by McKinsey</a> tells us that good ESG practices could potentially lead to positive cash flows, as well as hedge financial and reputational risks due to the following reasons:</p>
<ul>
<li>ESG drives consumer preference as some customers are <a href="https://www.forbes.com/sites/gregpetro/2022/03/11/consumers-demand-sustainable-products-and-shopping-formats/">willing to pay a premium to go green</a>. McKinsey also found that companies that use sustainable practices in their supply chain are able to cut costs.</li>
<li>Responsible reporting minimizes regulatory and legal interventions, which generates less negative publicity for an organization.</li>
<li>Having generous social policies in place helps motivate and retain staff, as well as increase employee productivity, which has been found to <a href="https://www.sciencedirect.com/science/article/abs/pii/S0304405X11000869">positively correlate with shareholder returns.</a></li>
<li>ESG practices help optimize investments and capital expenditures. One way to get ahead of the curve is to consider making investments into assets that take advantage of sustainability tailwinds. For example, China’s efforts to curb air pollution is estimated to create <a href="http://www.chinadaily.com.cn/a/201804/18/WS5ad69dc6a3105cdcf6518f2c.html">over $3 trillion in investment opportunities across various industries</a> through 2030.</li>
</ul>
<p> </p>
<h4><strong>Integrating ESG in business practices doubles as good risk management, which goes on to generate brand equity for companies and attract investors.</strong></h4>
<p>Research has <a href="https://www.mdpi.com/2071-1050/12/1/254">found a positive relationship</a> between ESG scores and brand equity value of S&P 500 companies. Good ESG incorporation mitigates reputational risks for an organization, and that is where investor confidence is built. In turn, investors manage financial risks by keeping exposures to ESG investments in their portfolios, which also helps them derive utility as they are inclined to feel that their investment decisions are part of a bigger movement to do better for the world.</p>
<p> </p>
<h4><strong>It's the Social and Governance factors that actually push away the risks.</strong></h4>
<p>We constantly hear a lot of buzz surrounding the Environmental aspect which dominates sustainable investment allocations, but the value of the Social and Governance aspects which have a determining impact on sustainable practices, and as a result, risk management within an organization, are rarely ever given recognition.</p>
<p>Taking a deep-dive into how the “S” and “G” areas are equally at play as the “E” in contributing to sound risk management within a company and yielding positive returns for investors, we delve into some research on how the three factors impact financial performance on an absolute basis.</p>
<p>A <a href="https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwi9kr_i48b3AhWTQc0KHfB2DUAQFnoECAYQAQ&url=https%3A%2F%2Fjournals.vgtu.lt%2Findex.php%2FJBEM%2Farticle%2Fdownload%2F12725%2F9980&usg=AOvVaw1dAd8rRWX31GFeB0IY3x9v">recent study</a> examined the overall and individual influences of corporate E, S, and G conduct on economic performance of S&P 500 firms. A breakdown of the scores for each aspect across companies from different industries and their correlation with the respective companies’ economic performances were looked at. The results may be surprising at first look: Corporate “E” conduct does not have any significant effect on firm economic performance, while conduct for “S” and “G” significantly influences firm economic performance.</p>
<p>The Social and Governance components are key to the general practices of risk management; aiming to do justice to these elements in the day-to-day course of running a business ensures responsible and skilled management structures, risk ownership, and compliance with regulatory requirements.</p>
<p>Here we covered reasons to explain these occurrences in the market — that ESG is an exceptional risk management tool for organizations internally, and also for investors in financial terms. More importantly, we saw that “S” and “G” are crucial to building optimal risk practices within a firm, which when combined with “E”, enhance the attractiveness of businesses and generate solid returns over the long term for investors.</p>
<p> </p>
<p><strong><u>References</u></strong></p>
<p>Ajour, E. et al. (2020). <em>The Role of Sustainability in Brand Equity Value in the Financial Sector. </em>MDPI. Retrieved April 29, 2022, from <a href="https://www.mdpi.com/2071-1050/12/1/254">https://www.mdpi.com/2071-1050/12/1/254</a></p>
<p>BNP Paribas SA Group (2021). <em>BNP Paribas recognized by EcoVadis and FTSE4Good extra-financial ratings. </em>BNP Paribas. Retrieved May 06, 2022, from https://group.bnpparibas/en/news/bnp-paribas-recognized-by-ecovadis-and-ftse4good-extra-financial-ratings</p>
<p>Cek, K. & Eyupoglu, S. (2020). <em>Does environmental, social and governance performance influence economic performance? </em>Scopus. Retrieved April 29, 2022, from <a href="https://www.scopus.com/record/display.uri?eid=2-s2.0-85087457813&origin=inward&txGid=4864f78cdc725470874f18fec147c309&featureToggles=FEATURE_NEW_DOC_DETAILS_EXPORT:1">https://www.scopus.com/record/display.uri?eid=2-s2.0-85087457813&origin=inward&txGid=4864f78cdc725470874f18fec147c309&featureToggles=FEATURE_NEW_DOC_DETAILS_EXPORT:1</a></p>
<p>Cheasty, G. (2019). <em>Asset Management: Integrating ESG Risk into a Risk Management Framework.</em> Deloitte. Retrieved April 22, 2022, from <a href="https://www2.deloitte.com/ie/en/pages/financial-services/articles/esg-risk-management-framework.html">https://www2.deloitte.com/ie/en/pages/financial-services/articles/esg-risk-management-framework.html</a></p>
<p>Dorobantu, S., Henisz, W. & Nartey, L. (2022). <em>Spinning gold: The financial returns to stakeholder engagement. </em>Wiley Online Library. Retrieved May 09, 2022, from <a href="https://onlinelibrary.wiley.com/doi/abs/10.1002/smj.2180">https://onlinelibrary.wiley.com/doi/abs/10.1002/smj.2180</a></p>
<p>Edmans, A. (2011). <em>Does the stock market fully value intangibles? Employee satisfaction and equity prices. </em>ScienceDirect. Retrieved May 09, 2022, from <a href="https://www.sciencedirect.com/science/article/abs/pii/S0304405X11000869">https://www.sciencedirect.com/science/article/abs/pii/S0304405X11000869</a><br /><br />Henisz, W., Koller, T., and Nuttall, R. (2019). <em>Five ways that ESG creates value. </em>McKinsey Quarterly. Retrieved May 09, 2022, from https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Strategy%20and%20Corporate%20Finance/Our%20Insights/Five%20ways%20that%20ESG%20creates%20value/Five-ways-that-ESG-creates-value.ashx</p>
<p>Lawrence, E., & Zlatkova, S. (2020). <em>Managing risk with ESG investing - CFA society chicago</em>. Northern Trust Asset Management. Retrieved April 26, 2022, from <a href="https://www.cfachicago.org/wp-content/uploads/2020/10/Blog_-Managing-Risk-with-ESG-Investing.pdf">https://www.cfachicago.org/wp-content/uploads/2020/10/Blog_-Managing-Risk-with-ESG-Investing.pdf</a></p>
<p>Murugaboopathy, P., & Dogra, G. (2021). <em>Global sustainable bonds see record issuance in Jan-Sept 2021</em>. Reuters. Retrieved April 26, 2022, from <a href="https://www.reuters.com/business/sustainable-business/global-sustainable-bonds-see-record-issuance-jan-sept-2021-2021-10-12/">https://www.reuters.com/business/sustainable-business/global-sustainable-bonds-see-record-issuance-jan-sept-2021-2021-10-12/</a></p>
<p>S&P Global. (2022). <em>S&P 500 ESG Index</em>. S&P Dow Jones Indices. Retrieved April 22, 2022, from <a href="https://www.spglobal.com/spdji/en/indices/esg/sp-500-esg-index/#overview">https://www.spglobal.com/spdji/en/indices/esg/sp-500-esg-index/#overview</a></p>
<p> </p>
<p style="padding-left: 440px;"><strong>∙ ∙ ∙</strong></p>
<p><em>The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member </em><a href="https://www.finra.org/"><em>FINRA</em></a><em> </em><a href="https://www.sipc.org/"><em>SIPC</em></a><em>.</em></p>
ESG
Investing
How Does ESG Relate to Risk Management?
Some investors have a hypothesis that ESG investments generate stronger, more sustainable returns over the long term.
25 Aug, 2022
4 min read
<p id="44d3" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">I arrived at Harvard as a first-year student in the fall of 2018. I was passionate about climate justice even as an incoming freshman. So you can imagine my surprise when I found out that my own university was also a corporation actively investing in the destruction of the homes of me and my peers, and the future of our society.</p>
<p id="1cd3" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">This is not hyperbole. Harvard is governed by the <a class="au li" href="https://www.harvard.edu/about/leadership-and-governance/harvard-corporation/" target="_blank" rel="noopener ugc nofollow">Harvard Corporation</a>, which manages a $52 billion endowment fund that up until recently included holdings in the fossil fuel companies driving the climate crisis.</p>
<p id="966c" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Like me, many students enter college with little to no idea of what endowments are or just how vast a social and political impact universities have through them. Endowments are large pots of money that universities invest to generate income. They are <a class="au li" href="https://www.insidephilanthropy.com/explainers/what-is-an-endowment" target="_blank" rel="noopener ugc nofollow">set up to ensure the financial future of a university</a> and enable it to provide for generations of students, faculty, and community members to come. But when invested in fossil fuel companies, the only futures these funds safeguard effectively are those of the extractive industries wrecking our planet, as well as the vested interests behind them.</p>
<p id="3149" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Divestment, or the act of removing one’s investment, <a class="au li" href="https://www.theguardian.com/environment/2015/jun/23/a-beginners-guide-to-fossil-fuel-divestment" target="_blank" rel="noopener ugc nofollow">works</a> to change that paradigm. It helps transform endowments from instruments of corporate finance into reflections of the needs, interests, and concerns of the university and broader community. Simply put, an institution of higher education cannot realize its espoused commitments to climate action, social justice, and preparing young people to be tomorrow’s leaders while investing in a status quo that prevents this from happening.</p>
<p id="911d" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Prestigious and wealthy universities have a unique responsibility to be leaders in divestment, and some have taken steps towards doing so. Harvard finally <a class="au li" href="https://www.thenation.com/article/activism/harvard-fossil-fuel-divestment-won/" target="_blank" rel="noopener ugc nofollow">moved</a> to divest in fall 2021 after years of tireless student organizing and massive public pressure. But other well-known universities, <a class="au li" href="https://www.washingtonpost.com/education/2022/02/16/college-fossil-fuel-divest-legal-action/" target="_blank" rel="noopener ugc nofollow">like Stanford</a>, have yet to divest.</p>
<p id="b58c" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Fossil fuel investments and other ties to the fossil fuel industry also <a class="au li" href="https://www.teenvogue.com/story/fossil-fuel-divest-harvard-complaint" target="_blank" rel="noopener ugc nofollow">create</a> an inherent conflict of interest that <a class="au li" href="https://www.project-syndicate.org/commentary/institutional-investors-must-divest-from-fossil-fuels-by-bevis-longstreth-1-and-connor-chung-2021-11" target="_blank" rel="noopener ugc nofollow">jeopardizes</a> universities’ core academic and <a class="au li" href="https://fossilfreeresearch.com/" target="_blank" rel="noopener ugc nofollow">research missions</a>. Consider, for instance, how many universities continue to <a class="au li" href="http://www.unkochmycampus.org/rsc-report" target="_blank" rel="noopener ugc nofollow">accept</a> <a class="au li" href="https://www.theguardian.com/education/2021/dec/11/uk-universities-took-89m-from-oil-firms-in-last-four-years" target="_blank" rel="noopener ugc nofollow">vast sums</a> of fossil fuel <a class="au li" href="https://tinyurl.com/fossilfuelties" target="_blank" rel="noopener ugc nofollow">funding</a> for climate change-related research, despite a <a class="au li" href="https://pubmed.ncbi.nlm.nih.gov/9605902/" target="_blank" rel="noopener ugc nofollow">well-documented</a> <a class="au li" href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6187765/" target="_blank" rel="noopener ugc nofollow">pattern</a> of <a class="au li" href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1360-0443.1997.tb02863.x#references-section" target="_blank" rel="noopener ugc nofollow">distorted</a> research outcomes resulting from funding by companies with an oppositional agenda. <a class="au li" href="https://www.ft.com/content/16091645-98b3-4041-9ca2-053fb60181ba" target="_blank" rel="noopener ugc nofollow">No</a> major fossil fuel company is <a class="au li" href="https://priceofoil.org/2020/09/23/big-oil-reality-check/" target="_blank" rel="noopener ugc nofollow">truly aligned</a> with the demands of climate science or justice. Many continue to launch concerted campaigns <a class="au li" href="https://www.climatechangecommunication.org/america-misled/" target="_blank" rel="noopener ugc nofollow">spreading</a> climate misinformation and <a class="au li" href="https://unearthed.greenpeace.org/2021/06/30/exxon-climate-change-undercover/" target="_blank" rel="noopener ugc nofollow">opposing</a> climate action. So it is clear that the industry cannot be a trustworthy partner in the production of public knowledge and ultimately, policy, on climate. By <a class="au li" href="https://www.latimes.com/opinion/story/2022-04-03/climate-change-research-funding-fossil-fuels" target="_blank" rel="noopener ugc nofollow">allowing</a> fossil fuel companies to use their credibility — whether through investments that sustain these companies’ core business model or research partnerships that <a class="au li" href="https://www.thenation.com/article/environment/university-climate-research-fossil-fuels/" target="_blank" rel="noopener ugc nofollow">bolster</a> their <a class="au li" href="https://www.theguardian.com/environment/2022/feb/16/oil-firms-climate-claims-are-greenwashing-study-concludes" target="_blank" rel="noopener ugc nofollow">greenwashing</a> — universities make themselves complicit in climate breakdown and <a class="au li" href="https://www.timeshighereducation.com/blog/fossil-fuel-research-ties-undermine-universities-climate-change-response" target="_blank" rel="noopener ugc nofollow">undermine</a> their own potential for urgently-needed climate leadership.</p>
<p id="3b5a" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Already, asset managers controlling nearly <a class="au li" href="https://www.stand.earth/advisory/divestment-40-trillion" target="_blank" rel="noopener ugc nofollow">$40 trillion</a> worth of funds have pledged to divest from fossil fuels because they recognize the need to align their financial practices with their principles. They also recognize the overwhelming <a class="au li" href="https://ieefa.org/major-investment-advisors-blackrock-and-meketa-provide-a-fiduciary-path-through-the-energy-transition/" target="_blank" rel="noopener ugc nofollow">evidence</a> that divestment <a class="au li" href="https://www.nytimes.com/2021/10/26/opinion/climate-change-divestment-fossil-fuels.html" target="_blank" rel="noopener ugc nofollow">works</a>. And they know that without taking a bold stance against fossil fuels and other industries undermining our sustainable future, they’ll lose the chance to have young people like myself as potential customers, employees, supporters, and so on. Regardless of the reason, the choice to divest must be applauded. But to truly lead on climate, institutions like Harvard must take the next step of severing remaining fossil fuel industry ties, by doing things like banning fossil fuel research money and recruitment on campus, or <a class="au li" href="https://www.thenation.com/article/environment/harvard-yale-fossil-fuel-divestment/" target="_blank" rel="noopener ugc nofollow">reinvesting</a> in community-based and renewable energy solutions.</p>
<p id="0bbe" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Still, some asset managers and fund trustees (unsurprisingly, some with <a class="au li" href="https://yaledailynews.com/blog/2022/02/24/four-yale-trustees-accused-of-conflict-of-interest-for-fossil-fuel-ties/" target="_blank" rel="noopener ugc nofollow">personal</a> <a class="au li" href="http://harvardcorplovesfossilfuels.divestharvard.com/" target="_blank" rel="noopener ugc nofollow">ties</a> to the fossil fuel industry) continue to make the same tired and bad faith arguments about the value of engaging with the fossil fuel industry as shareholders. We know that such engagement <a class="au li" href="https://impakter.com/harvard-from-apartheid-to-the-climate-crisis-the-limits-of-shareholder-engagement/" target="_blank" rel="noopener ugc nofollow">does not</a> <a class="au li" href="https://www.commondreams.org/views/2021/11/22/shareholder-engagement-fossil-fuel-companies-failure-climate-change" target="_blank" rel="noopener ugc nofollow">work</a> when the core business model is the problem. And it cannot work when the fossil fuel industry makes it <a class="au li" href="https://www.newsweek.com/fossil-fuel-companies-are-undermining-our-future-opinion-1609813" target="_blank" rel="noopener ugc nofollow">abundantly clear</a> that it’s unwilling to let this model go so long as any potential profit remains — no matter the cost to the environment or human life. That is why young people must continue leading the way in calling for total divestment. It is not <em class="lh">an option</em> but the <em class="lh">only option</em> for moneyed institutions to play a positive role in combating climate change.</p>
<p id="02bd" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Actions and dollars, too, speak louder than words. Ending fossil fuel finance and other forms of social license-giving to the fossil fuel industry is vital for remaking our energy and economic systems in favor of people and the planet. The case is as strong as ever: with Russia’s war on Ukraine <a class="au li" href="https://www.newyorker.com/news/daily-comment/this-earth-day-we-could-be-helping-the-environment-and-ukraine" target="_blank" rel="noopener ugc nofollow">making</a> the instability of a global fossil fuel economy uniquely clear, we need to push our institutions to be champions of this remaking, instead of dragging their heels.</p>
<p class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph=""> </p>
<p class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" style="padding-left: 440px;" data-selectable-paragraph=""><strong>∙ ∙ ∙</strong></p>
<div class="ir is it iu iv">
<p id="48f3" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph=""><em class="lh">The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member </em><a class="au li" href="https://www.finra.org/" target="_blank" rel="noopener ugc nofollow"><em class="lh">FINRA</em></a><em class="lh"> </em><a class="au li" href="https://www.sipc.org/" target="_blank" rel="noopener ugc nofollow"><em class="lh">SIPC</em></a><em class="lh">.</em></p>
</div>
Environmental
Investing
Why Are Students Pushing Universities To Divest?
Some universities are using endowment funds to invest in the oil industry.
06 Sep, 2022
5 min read
<p><span style="font-weight: 400;">Are you an investor who cares not only about the performance of your portfolio, but also how your investments affect the environment, society, or humanity as a whole?</span></p>
<p><span style="font-weight: 400;">If you do, you’re not alone. There are many investors who invest based on their own morals, what they think is ethical, or to achieve a certain social goal. In fact, this type of investing is so popular that there are a handful of different terms that refer to the practice of aligning your investments with your values.</span></p>
<p><span style="font-weight: 400;">You may have heard of impact investing, sustainable investing, socially-responsible investing, or ESG, but what do all these terms actually mean? And how do they differ?</span></p>
<p> </p>
<p><span style="font-weight: 400;">Let’s define some of the commonly used terms:</span></p>
<p> </p>
<p><strong>ESG — </strong><span style="font-weight: 400;">Stands for </span><a href="https://fennel.com/fennel101/esg"><span style="font-weight: 400;">Environmental, Social, and Governance</span></a><span style="font-weight: 400;">. A framework for assessing companies beyond solely financial data, by looking at that company’s impact on the environment, its impact on society, and how that company is organized. ESG is about better understanding a company by taking into account this information.</span></p>
<p> </p>
<p><strong>ESG investing — </strong><span style="font-weight: 400;">Involves incorporating ESG data in order to make investment decisions. Traditionally, ESG investing is </span><a href="https://fennel.com/blog/how-does-esg-relate-to-risk-management"><span style="font-weight: 400;">viewed as a form of risk management</span></a><span style="font-weight: 400;">, where ESG is used to identify companies that are managed sustainably and avoid those that could face regulatory scrutiny. However, ESG investing is often grouped together with socially responsible investing or sustainable investing — even though technically those refer to different strategies.</span></p>
<p> </p>
<p><strong>Ethical investing — </strong><span style="font-weight: 400;">Using your personal code of ethics to determine what to invest in. This differs from investor to investor. One person may think ethical investing involves divesting from companies that test on animals, while another person may not care about animal testing and instead focus on avoiding companies that benefit from child labor.</span></p>
<p> </p>
<p><strong>Impact investing —</strong><span style="font-weight: 400;"> According to the </span><a href="https://thegiin.org/impact-investing/need-to-know/#what-is-impact-investing"><span style="font-weight: 400;">Global Impact Investing Network</span></a><span style="font-weight: 400;">, impact investing refers to making investments “with the intention to generate positive, measurable social and environmental impact alongside a financial return.”</span></p>
<p><span style="font-weight: 400;">Impact investing is a broad term, but in order to qualify as impact investing the investor should have the desire to create a positive, the ability to measure that impact, the evidence to inform that investment decision, and the goal of also generating returns in the end.</span></p>
<p> </p>
<p><strong>Socially responsible investing (SRI) —</strong><span style="font-weight: 400;"> Involves investing in something based on how that investment impacts the environment, society, or the greater good. The concept of SRI has been around for decades (at least) and is sometimes used interchangeably with ethical investing and sustainable investing.</span></p>
<p> </p>
<p><strong>Sustainable investing —</strong><span style="font-weight: 400;"> According to </span><a href="https://online.hbs.edu/blog/post/sustainable-investing"><span style="font-weight: 400;">Harvard Business School</span></a><span style="font-weight: 400;">, sustainable investing refers to “a range of practices in which investors aim to achieve financial returns while promoting long-term environmental or social value” — emphasis on </span><em><span style="font-weight: 400;">long-term</span></em><span style="font-weight: 400;">.</span></p>
<p><span style="font-weight: 400;">Sustainable investing often is associated with investing in green energy or environmentally-friendly practices because the word “sustainable” is often used in that setting</span></p>
<p> </p>
<p><strong>Values-based investing —</strong><span style="font-weight: 400;"> Similar to ethical investing, values-based investing involves making investment decisions based on a person’s own set of values. Sometimes those values reflect a person’s morals or religion, and other times they reflect a more generalized set of beliefs. Regardless of what those beliefs are, a values-based approach depends on the individual investor. </span></p>
<p> </p>
<h4><strong>Which approach is best for you?</strong></h4>
<p><span style="font-weight: 400;">After going through all of these terms, you may have noticed that there are a lot of similarities. Sometimes the differences between these approaches depend on the intention or end goal, other times it just comes down to semantics.</span></p>
<p><span style="font-weight: 400;">Hopefully, next time you hear one of these terms get tossed around you’ll have a better understanding of what it means. This understanding may help you make your own investing decisions going forward.</span></p>
<p> </p>
<p style="padding-left: 440px;"><strong>* * *</strong></p>
<p><span style="font-weight: 400;">The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member </span><a href="http://finra.org"><span style="font-weight: 400;">FINRA</span></a><span style="font-weight: 400;"> </span><a href="https://www.sipc.org/"><span style="font-weight: 400;">SIPC</span></a><span style="font-weight: 400;">.</span></p>
ESG
Investing
ESG vs SRI: What Do All the Terms Mean?
There are a lot of terms used in the world of impact investing, what do they all mean?
01 Nov, 2022
2 min read
<p><span style="font-weight: 400;">Financial advisors aim to provide their clients with less risky, higher returns in the equity markets than the client would achieve on their own— even after the professional fees. The financial planning industry places a lot of emphasis on the client-advisor relationship, which is something that’s sometimes lacking with new technologies like robo-advising and self-directed trading apps. Many investors prefer the friendly and cordial relationships they form with licensed professionals, which could be why wealth managers handle over </span><a href="https://www.investopedia.com/articles/professionals/111115/how-big-wealth-management-and-financial-advisor-industry.asp"><span style="font-weight: 400;">$103 trillion in assets under management</span></a><span style="font-weight: 400;"> worldwide. </span></p>
<p><span style="font-weight: 400;"> </span><span style="font-weight: 400;">But lately, clients have begun demanding other types of returns on their investments, namely, environmental and social impact. This demand is pushing financial advisors to increase exposure to Environmental, Social, and Governance (ESG) investments, while others are simply </span><a href="https://www.investmentnews.com/financial-advisers-hone-focus-esg-strategies-211318"><span style="font-weight: 400;">rebranding</span></a><span style="font-weight: 400;"> existing funds as sustainable. As a younger, more socially-responsible generation of investors entrust their money with financial advisors and expect ESG returns, it is important that they know which financial professionals are qualified to give advice. </span></p>
<p><span style="font-weight: 400;">The Certified Financial Planner (CFP) Certification is one of the most recognized designations in the field, with </span><a href="https://prod-sitefinity-library.kappro.com/docs/default-source/kfe-documents/32630-1-kfe---cffp---survey-of-trends-report-2022---report-flipping-book---final-220324.pdf?_ga=2.177507680.478076054.1652781443-1303717597.1650695050&_gac=1.254568314.1652781443.CjwKCAjwj42UBhAAEiwACIhADnJvXjlO6Y8eK2pj5aQSMOLe8CDhDvhlqoEcYp1TcQIBAR39PWNYPRoCH8MQAvD_BwE"><span style="font-weight: 400;">35% of professional advisors holding the certification</span></a><span style="font-weight: 400;"> according to The College of Financial Planning’s recent survey. According to the survey, certifications like the CFP help financial professionals develop a deeper understanding of their work, a higher client pool, increased earning potential, and greater career satisfaction. But the CFP is just one type of certification. And as client demands transform over time — like the growing demand for ESG investing — new certifications are helping financial advisors stay with the times.</span></p>
<p><span style="font-weight: 400;">The Chartered Socially Responsible Investing Counselor (CSRIC®) Designation was </span><a href="https://www.ussif.org/courses_csric"><span style="font-weight: 400;">developed in partnership with the Forum for Sustainable and Responsible Investment</span></a><span style="font-weight: 400;"> and is meant to market an advisor’s ability to identify growth trends in sustainable investment, engage in shareholder advocacy, and apply ESG strategies across a mix of asset classes. To qualify for this mark, candidates must successfully complete the specialized course and pass a test, abide by ethical standards, comply with self-disclosure requirements, and complete continuing education within the two-year authorization period.</span></p>
<p><span style="font-weight: 400;">Currently, only 2% of advisors hold the CSRIC designation, signaling an extraordinary opportunity for advisors to capitalize on </span><a href="https://www.finextra.com/pressarticle/92266/wealth-advisors-failing-consumers-on-esg"><span style="font-weight: 400;">outsized consumer demand for ESG guidance</span></a><span style="font-weight: 400;">. The market is already adjusting as </span><a href="https://300hours.com/csric-chartered-sri-counselor/"><span style="font-weight: 400;">CSRIC certified graduates have grown 122% annually since 2019.</span></a><span style="font-weight: 400;"> While there are many financial professionals well-versed in ESG who do not hold the CSRIC designation, if you are a potential client looking for trained advisors with shared values, the designation could aid in your search. In fact, </span><a href="https://www.earthequityadvisors.com/team/"><span style="font-weight: 400;">some wealth management firms</span></a><span style="font-weight: 400;"> have truly leaned into the ESG movement by boasting fully-CSRIC-credentialled teams and company-level sustainability designations like the </span><a href="https://www.bcorporation.net/"><span style="font-weight: 400;">B Corp</span></a><span style="font-weight: 400;">. </span></p>
<p><span style="font-weight: 400;">Beyond pairing impact investors with SRI advisors, these credentials help advance the movement by legitimizing and socializing ESG concepts into the industry mainstream.</span></p>
<p> </p>
<p style="padding-left: 400px;"><strong>∙ ∙ ∙</strong></p>
<p><em><span style="font-weight: 400;">The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member </span><a href="http://finra.org"><span style="font-weight: 400;">FINRA</span></a><span style="font-weight: 400;"> </span><a href="https://www.sipc.org/"><span style="font-weight: 400;">SIPC</span></a><span style="font-weight: 400;">.</span></em></p>
Investing
Socially Responsible Investing Gets Legitimized With CSRIC Designation for Financial Planners
More people are paying attention to socially responsible investing.
17 Nov, 2022
2 min read
<p><span style="font-weight: 400;">There is a growing number of investors who aren’t satisfied with </span><em><span style="font-weight: 400;">just</span></em><span style="font-weight: 400;"> financial returns, they want to know that their investments are creating a better world. This desire to make change is at the core of impact investing.</span></p>
<p><a href="https://fennel.com/blog/esg-vs-sri-what-do-all-the-terms-mean"><span style="font-weight: 400;">Impact investing</span></a><span style="font-weight: 400;"> refers to when investments are made with the intention of generating positive and measurable social or environmental impacts. Typically, an investor will have an idea of what impact they want to have, and then seek out investments to create that impact. This could mean investing in renewable energy companies to promote decarbonization, investing in minority-led companies to promote the work of underrepresented groups, and so on.</span></p>
<p><span style="font-weight: 400;">But what does this look like in practice? Here are a handful of impact investing examples for interested investors</span></p>
<p> </p>
<h4><strong>Example #1: Impact investing in diverse founders</strong></h4>
<p><span style="font-weight: 400;">So many startups rely on venture capital funding in order to get up and running. But where that VC cash flows isn’t always equitable.</span></p>
<p><span style="font-weight: 400;">One study found that </span><a href="https://www.forbes.com/sites/forbesbusinesscouncil/2022/05/26/diversity-the-holy-grail-of-venture-capital/?sh=5b51cec34178"><span style="font-weight: 400;">77% of VC dollars</span></a><span style="font-weight: 400;"> go to startups led by white founders. In 2021, a record year for VC funding, </span><a href="https://news.crunchbase.com/diversity/vc-funding-black-founded-startups/"><span style="font-weight: 400;">only 1.3%</span></a><span style="font-weight: 400;"> of all U.S. venture and growth equity financing went to companies led by Black founders. Harlem Capital hopes to close that funding gap.</span></p>
<p><span style="font-weight: 400;">Harlem Capital started in 2015 as a syndicate of angel investors, and evolved over the years into a fully-fledged VC firm. The company debuted with </span><a href="https://techcrunch.com/2019/12/02/diversity-focused-vc-fund-harlem-capital-debuts-with-40m/"><span style="font-weight: 400;">its inaugural $40 million fund</span></a><span style="font-weight: 400;"> in 2019 and plans to invest in 1,000 diverse founders over the course of 20 years. After using that $40M fund to invest in 23 companies, Harlem Capital raised </span><a href="https://harlem.capital/harlem-capital-134-million-fund/"><span style="font-weight: 400;">a $134 million fund</span></a><span style="font-weight: 400;"> to invest in even more diverse founders.</span></p>
<p><span style="font-weight: 400;">These diverse founders are building an array of diverse solutions, from </span><a href="https://harlem.capital/portfolio/curu"><span style="font-weight: 400;">credit platforms that provide wider access to loans</span></a><span style="font-weight: 400;">, to a </span><a href="https://harlem.capital/portfolio/agape"><span style="font-weight: 400;">relationship wellness app for couples</span></a><span style="font-weight: 400;">, </span><a href="https://harlem.capital/portfolio/jobble"><span style="font-weight: 400;">gig marketplace for independent workers</span></a><span style="font-weight: 400;">, and more. </span></p>
<p><span style="font-weight: 400;">“We fundamentally believe we are a venture fund with impact, not an impact fund. The way we generate impact is to give women and minority entrepreneurs ownership,” Harlem Capital managing partner Henri Pierre-Jacques told TechCrunch.</span></p>
<p> </p>
<h4><strong>Example #2: Impact investing in the oil industry</strong></h4>
<p><span style="font-weight: 400;">In late 2020, a small activist hedge fund called Engine No. 1 </span><a href="https://hbr.org/2021/01/can-a-tiny-hedge-fund-push-exxonmobile-towards-sustainability"><span style="font-weight: 400;">acquired a $40 million stake</span></a><span style="font-weight: 400;"> in oil giant ExxonMobil, worth about 0.02% of the company’s shares. The hedge fund then wrote </span><a href="https://reenergizexom.com/materials/letter-to-the-board-of-directors/"><span style="font-weight: 400;">an open letter</span></a><span style="font-weight: 400;"> to Exxon’s board of directors to explain why.</span></p>
<p><span style="font-weight: 400;">In that letter, Engine No. 1 pointed out the ways that Exxon had been struggling and failed to deliver shareholder returns. It also pointed out a four-part strategy for fixing this: 1) refresh the board of directors with people who has experience in the energy industry 2) become more disciplined in managing long-term capital allocation 3) implement a plan for the business to thrive in a world pushing away from fossil fuels, and 4) realign management incentives with creating shareholder value.</span></p>
<p><span style="font-weight: 400;">Engine No. 1 then nominated four new directors for Exxon’s board, and campaigned for them during proxy season. After gaining the support of some of Exxon’s largest shareholders, three out of four of those directors won seats on the board. After that, Exxon started </span><a href="https://engine1.com/transforming/articles/exxon-mobil-one-year-later/"><span style="font-weight: 400;">making measurable advancements</span></a><span style="font-weight: 400;"> towards its new goals. For example, the company committed $15B towards investing in low-carbon solutions over a six year span, announced new scope 1 and scope 2 greenhouse gas targets for 2030, added a low-carbon solutions business unit and got the former head of General Motors’ Cruise to lead it.</span></p>
<p> </p>
<h4><strong>Example #3: Impact investing in response to apartheid</strong><span style="font-weight: 400;"> </span></h4>
<p><span style="font-weight: 400;">Word about the injustices committed in apartheid-era South Africa spread across the world. While many South African groups fought for their rights, international organizations also joined in to show support in their own way. </span></p>
<p><span style="font-weight: 400;">By the 1970s and 80s, students at American universities </span><a href="https://www.universityofcalifornia.edu/news/how-students-helped-end-apartheid"><span style="font-weight: 400;">were protesting in solidarity</span></a><span style="font-weight: 400;"> with South African students. Although these American students were thousands of miles away, they thought they could help by pressuring their universities </span><a href="https://nvdatabase.swarthmore.edu/content/columbia-university-students-win-divestment-apartheid-south-africa-united-states-1985"><span style="font-weight: 400;">to divest</span></a><span style="font-weight: 400;"> from companies that supported the apartheid regime.</span></p>
<p><span style="font-weight: 400;">By 1988, </span><a href="https://www.investopedia.com/articles/economics/08/protest-divestment-south-africa.asp"><span style="font-weight: 400;">155 colleges</span></a><span style="font-weight: 400;"> across the US and Canada had divested from South Africa. And soon this movement spread beyond universities. By the end of 1989, 26 states, 22 counties, and over 90 cities </span><a href="http://richardknight.homestead.com/files/uscorporations.htm"><span style="font-weight: 400;">had also created policies</span></a><span style="font-weight: 400;"> against companies doing business in South Africa.</span></p>
<p><span style="font-weight: 400;">This pressure caused many US businesses to pull out of South Africa. From 1985 to 1990, over 200 US companies collectively pulled out of South Africa, resulting in </span><a href="https://www.investopedia.com/articles/economics/08/protest-divestment-south-africa.asp"><span style="font-weight: 400;">a loss of $1 billion</span></a><span style="font-weight: 400;"> in direct investment dollars. Other countries put pressure on their companies to pull out of South Africa too, and by the early 1990s, the South African economy was </span><a href="http://richardknight.homestead.com/files/uscorporations.htm"><span style="font-weight: 400;">feeling the effects of capital flight</span></a><span style="font-weight: 400;">.</span></p>
<p> </p>
<h4><strong>Example #4: Impact investing in Chicago</strong></h4>
<p><span style="font-weight: 400;">Sometimes impact investing is most felt at the local level. The Chicago Community Trust is a foundation that connects philanthropic donors, local organizations, and generous individuals who want to use their money to create a positive impact within the Chicago community.</span></p>
<p><span style="font-weight: 400;">In 2020, the foundation </span><a href="https://www.cct.org/press-releases/the-chicago-community-trust-launches-impact-investing-platform/"><span style="font-weight: 400;">launched</span></a><span style="font-weight: 400;"> an impact investing platform to help facilitate impact-driven investments. The platform also helps investors measure the impact of their contributions by showing if they help low-income neighborhoods, go to businesses run by minority or women owners, help provide affordable housing, or if they provide capital to sustainable energy initiatives.</span></p>
<p> </p>
<h4><strong>Example #5: Impact investing in agricultural development</strong></h4>
<p><span style="font-weight: 400;">Lots of people talk about ending world hunger, what are some ways to actually do that? According to Root Capital, by investing in agricultural enterprises in the developing world.</span></p>
<p><span style="font-weight: 400;">Since 1999, Root Capital has been investing in agriculture businesses in Latin America, sub-Saharan Africa, and Southeast Asia. Not only does the organization supply capital, it also provides training to help these companies grow.</span></p>
<p><span style="font-weight: 400;">In addition to creating more steady sources of food, Root Capital also aims to use its investments to help alleviate local poverty, protect the planet, and advance gender inclusion.</span></p>
<p><span style="font-weight: 400;">To date, the organization has </span><a href="https://rootcapital.org/about-us/"><span style="font-weight: 400;">distributed</span></a><span style="font-weight: 400;"> $1.6 billion to over 750 clients, representing 2.3 million farmers and $4.6 billion in economic activity.</span></p>
<p><br /><br /></p>
<p><em>Risks:</em></p>
<p><em><span style="font-weight: 400;"> Employing ESG strategies may not result in favorable investment performance. The returns on a portfolio consisting primarily of Environmental, Social and Governance (“ESG”) aware, diversity equity and inclusion (DEI), impact investing, or faith-based investments may be lower or higher than a portfolio that is more diversified or where decisions are based solely on investment considerations. Because ESG criteria exclude some investments, investors may not be able to take advantage of the same opportunities or market trends as investors that do not use such criteria.</span></em></p>
<p style="padding-left: 400px;"><strong>∙ ∙ ∙</strong></p>
<p><em><span style="font-weight: 400;">The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member </span><a href="http://finra.org"><span style="font-weight: 400;">FINRA</span></a><span style="font-weight: 400;"> </span><a href="https://www.sipc.org/"><span style="font-weight: 400;">SIPC</span></a><span style="font-weight: 400;">. </span></em></p>
Shareholder Activism
ESG
Environmental
Social
Governance
Investing
5 Impact Investing Examples: How Investors Push for Change
What does impact investing look like in practice?
21 Dec, 2022
5 min read
<p><span style="font-weight: 400;">When investors want to understand the way a market is performing, they often look at a market index. An index is a tool that is used to measure the performance of a certain group of assets, typically by taking the weighted average of those assets in order to create a representative sample.</span></p>
<p><span style="font-weight: 400;">There are many different types of indices. One that has been in the news a lot recently is the </span><a href="https://www.bls.gov/cpi/#:~:text=The%20Consumer%20Price%20Index%20(CPI,U.S.%20and%20various%20geographic%20areas."><span style="font-weight: 400;">Consumer Price Index</span></a><span style="font-weight: 400;">, which measures the average price change over time for a select group of consumer goods and services. People have been paying attention to this index because it provides a useful way to measure inflation in the US, especially in terms of how it’s felt by your average consumer.</span></p>
<p><span style="font-weight: 400;">Some other indices you may have heard of are the </span><a href="https://www.britannica.com/topic/SandP-500"><span style="font-weight: 400;">S&P 500</span></a><span style="font-weight: 400;"> and </span><a href="https://www.britannica.com/topic/Dow-Jones-average"><span style="font-weight: 400;">Dow Jones Industrial Average</span></a><span style="font-weight: 400;">, which both measure stock market performance by looking at either a group of 500 American publicly traded companies (S&P 500) or a basket of 30 industrial stocks (DJIA).</span></p>
<p><span style="font-weight: 400;">Indices are popular tools to help track markets, regardless of whether those markets are broad or more niche. So it should come as no surprise that some investors use ESG indices in order to follow the performance of companies that prioritize their </span><a href="https://fennel.com/fennel101/esg"><span style="font-weight: 400;">environmental, social, and governance</span></a><span style="font-weight: 400;"> practices.</span></p>
<p> </p>
<h4><strong>What is an ESG index?</strong></h4>
<p><span style="font-weight: 400;">An ESG index is a collection of stocks of companies that exhibit high ESG performance. Like other indices, an ESG index is designed to act as a market benchmark, specifically for companies that prioritize ESG within their business operations.</span></p>
<p><span style="font-weight: 400;">These ESG indices can help investors track high-performing ESG companies, compare those companies to the broader market, or provide an investment opportunity through an affiliated ETF or mutual fund.</span></p>
<p><span style="font-weight: 400;">ESG indices are often put together by a company that provides its own ESG rating system, or by a financial institution that tracks the market. Each ESG index has its own method of picking stocks to be included, rebalancing over time, weighing underlying assets, and taking averages. So each ESG index provides a unique benchmark.</span></p>
<p> </p>
<p><strong>Here are some examples of different ESG indices, as well as what makes them unique.</strong></p>
<p><em><span style="font-weight: 400;">(This list is intended for educational purposes only, and should not be seen as an endorsement to invest. Employing ESG strategies may not result in favorable investment performance.)</span></em></p>
<p> </p>
<p><strong>S&P 500 ESG Index</strong></p>
<p><span style="font-weight: 400;">S&P Global’s S&P 500 index provides a market cap-weighted index of 500 large publicly traded companies. As mentioned before, it’s a popular index for investors who want a snapshot of the US stock market.</span></p>
<p><span style="font-weight: 400;">But to turn the S&P 500 into an ESG index, S&P Global analyzed its list of 500 companies to find the top ESG performers and filter out the companies involved in controversial weapons, tobacco, coal production, or companies that had disqualifying UN Global Compact scores. As of 2022, around 300 of the original 500 companies are included in the S&P 500 ESG index.</span></p>
<p><span style="font-weight: 400;">This makes the S&P 500 ESG index a more exclusive list than its parent index. And since the S&P 500 ESG index has significant overlap with the S&P 500, some investors like to compare the two indices to see if companies that prioritize ESG actually outperform their counterparts.</span></p>
<p> </p>
<p><strong>S&P SmallCap 600 ESG Index</strong></p>
<p><span style="font-weight: 400;">Similar to how S&P Global took its S&P 500 benchmark and refined it using an ESG lens, the organization did the same thing for its index tracking small cap companies.</span></p>
<p><span style="font-weight: 400;">While the S&P 500 tracks 500 public companies with large market capitalizations, the S&P SmallCap 600 index tracks companies with a market capitalization between $850 million and $3.7 billion. So the S&P SmallCap 600 ESG index uses S&P Global’s same methodology to pick out the top ESG performers from the SmallCap index and exclude companies involved in controversial practices.</span></p>
<p><span style="font-weight: 400;">S&P Global actually has </span><a href="https://www.spglobal.com/spdji/en/documents/methodologies/methodology-sp-esg-index-series.pdf"><span style="font-weight: 400;">a number of different ESG indices</span></a><span style="font-weight: 400;"> that it creates by refining one of its parent indices, or by compiling different ESG indices to create a composite index. These indices are meant to provide benchmarking for companies based on their market cap, geography, and more (as well as their ESG performance).</span></p>
<p> </p>
<p><strong>Refinitiv/S-Network ESG Best Practices Indices</strong></p>
<p><span style="font-weight: 400;">ESG data provider Refinitiv has developed a handful of ESG indices that fall under its Refinitiv/S-Network ESG Best Practices Indices umbrella. This includes the Refinitiv/S-Network US Large-Cap ESG Best Practices Index, Refinitiv/S-Network US Large-Cap Environmental Best Practices Index, Refinitiv/S-Network US Large-Cap Social Best Practices Index, Refinitiv/S-Network US Large-Cap Governance Best Practices Index, Refinitiv/S-Network Emerging markets ESG Best Practices Index, and a handful of others.</span></p>
<p><span style="font-weight: 400;">These indices take the ESG rating system developed by Refinitiv and S-Network in order to provide a benchmark that tracks the top ESG performers. Altogether, these indices represent over 11,000 companies, which have been analyzed across more than 630 ESG performance indicators.</span></p>
<p> </p>
<p><strong>The Refinitiv Global Resource Protection Select Index</strong></p>
<p><span style="font-weight: 400;">While the Refinitiv/S-Network ESG Best Practices Indices look at ESG performance across more than 630 indicators, the Refinitiv Global Resource Protection Select Index narrows its scope by focusing on companies that perform well under Refinitiv’s “Resource Use” category.</span></p>
<p><span style="font-weight: 400;">This means that companies included in the index have displayed efforts to reduce their materials, energy, or water usage, as well as made an effort to implement more sustainable efforts in their supply chain management.</span></p>
<p> </p>
<p><strong>MSCI USA ESG Select Index</strong></p>
<p><span style="font-weight: 400;">Morgan Stanley Capital International put together its MSCI USA ESG Select Index by compiling companies with positive environmental, social, and governance factors that display similar risk and returns metrics to its more broad MSCI USA Index. The index is designed to maximize exposure to ESG factors by providing more weight to companies with high ESG ratings, and less to companies with low ESG ratings.</span></p>
<p> </p>
<p><strong>MSCI KLD 400 Social Index</strong></p>
<p><span style="font-weight: 400;">An honorable mention goes to the MSCI KLD 400 Social Index, which evolved from the Domini 400 Social Index — one of the oldest ESG indices that still exists.</span></p>
<p><span style="font-weight: 400;">The Domini 400 Social Index was created in 1990, over a decade before the term “ESG” </span><a href="https://www.euromoney.com/article/294dqz2h1pqywgbyh3zls/esg/the-united-nations-free-thinkers-who-coined-the-term-esg-and-changed-the-world"><span style="font-weight: 400;">was coined</span></a><span style="font-weight: 400;">. This index was designed to track companies suitable for the “socially-responsible investing” movement, and has since evolved to incorporate the more standardized criteria that ESG provides.</span></p>
<p> </p>
<p><strong>Morningstar Global Markets Sustainability Index</strong></p>
<p><span style="font-weight: 400;">Financial services company Morningstar has a handful of ESG indices. Among them is its Morningstar Global Markets Sustainability Index, which is designed to reduce the risk caused by issues related to poor performance in environmental, social, and governance factors. Companies included in the list are from the Morningstar Global Markets Large-Mid Index.</span></p>
<p> </p>
<p><strong>Nasdaq-100 ESG Index</strong></p>
<p><span style="font-weight: 400;">The Nasdaq-100 ESG Index is an ESG screened version of the Nasdaq-100, which is a basket of 100 of the largest companies traded on the Nasdaq stock exchange. In order to turn the Nasdaq-100 Index into the Nasdaq-100 ESG Index, the financial organization says it looks at 15 potentially problematic areas of business and excludes them from the ESG index.</span></p>
<p><span style="font-weight: 400;">But Nasdaq also admits that most of the companies in the Nasdaq-100 parent index take ESG seriously. So only 6% of companies in the original index get filtered out to create the Nasdaq-100 ESG Index.</span></p>
<p> </p>
<p style="text-align: center;"><strong>∙ ∙ ∙</strong></p>
<p><em><span style="font-weight: 400;">The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Employing ESG strategies may not result in favorable investment performance. Securities offered through Fennel Financials, LLC. Member </span></em><a href="http://finra.org/"><em><span style="font-weight: 400;">FINRA</span></em></a><em><span style="font-weight: 400;"> </span></em><a href="https://www.sipc.org/"><em><span style="font-weight: 400;">SIPC</span></em></a><em><span style="font-weight: 400;">. </span></em></p>
ESG
Investing
ESG Index: What Is It and What Are Some Examples?
An ESG index can help you track the performance of certain ESG-vetted companies over time.
22 Feb, 2023
5 min read
<p class="p1"><a href="https://fennel.com/blog/proxy-season-2023-is-coming-up-heres-what-you-need-to-know" target="_blank" rel="noopener">Proxy season 2023</a> is coming up, which means investors are getting ready to exercise their rights as shareholders and vote on important business decisions. But before the annual general meetings of 2023 really kick off, let’s take a look back at last year and pick out some of the trends we saw in proxy season 2022. That way, we might have a better idea of what to expect in 2023.</p>
<p class="p1">Here are some of the highlights from last year’s proxy season:</p>
<p class="p2"> </p>
<p class="p1"><strong>There was a record number of shareholder proposals in 2022</strong></p>
<p class="p1">If your favorite part of proxy season is voting on shareholder proposals, 2022 was your year. Last year broke records in not only the number of shareholder proposals that were submitted to public companies, but also the number of proposals that made it to the ballot and were voted on.</p>
<p class="p1">According to <a href="https://corpgov.law.harvard.edu/2022/10/27/boardroom-recap-the-2022-proxy-season/"><span class="s1">a PricewaterhouseCoopers study</span></a>, there were 555 shareholder proposals among Russell 3000 companies that were voted on — a 25% increase compared to the previous year.</p>
<p class="p1">The study says that this is the result of two factors. One, a 17% increase in the number of shareholder proposals that were submitted to these companies. And two, a 40% decrease in no-action requests granted by the SEC (these requests allow companies to drop certain shareholder proposals from their proxy statements).</p>
<p class="p1">With this record number of proposals being voted on, a record number of proposals also received the majority of votes.</p>
<p class="p2"> </p>
<p class="p1"><strong>Lots of these proposals centered around ESG issues</strong></p>
<p class="p1">In this record year of shareholder proposals, there were plenty that were related to ESG. Proxy Preview Project <a href="https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/record-number-of-shareholder-esg-proposals-in-2022-defies-gop-political-backlash-71181308"><span class="s1">found</span></a> 607 instances of shareholder resolutions related to ESG topics in the first half of 2022, which it said was a 22% increase from the year before.</p>
<p class="p1">This uptick came despite the fact that a 2020 SEC rule made it relatively harder to file and refile shareholder proposals.</p>
<p class="p1">"The attempt to silence shareholder voices has, instead, prompted them to get louder," Andrew Behar, CEO of As You Sow, wrote in <a href="https://www.proxypreview.org/2022/report-blog"><span class="s1">the Proxy Preview report</span></a>. "This uprising is occurring while investors and fiduciaries increasingly understand that systemic risk affects all players in the capital markets, inspiring leading companies onto the path of serving all stakeholders."</p>
<p class="p2"> </p>
<p class="p1"><strong>Some of the top ESG issues were: DEI, climate change, and political spending</strong></p>
<p class="p1">While governance issues remained a popular topic for shareholder proposals, there number of shareholder proposals surrounding environmental and social issues almost doubled among Russell 3000 companies, according to the PwC study mentioned before.</p>
<p class="p1">However, the study points out that only 41 of the 288 E and S related proposals received the majority of votes. This is a slight uptick from the 36 proposals that got the majority of votes in 2021, but still represents a decline in the percentage of proposals reaching the majority benchmark.</p>
<p class="p1">The study found that the number of environment-related proposals doubled compared to the year before. These proposals included topics like measuring direct emissions, climate risk management, measuring indirect emissions, and implementing sustainable packaging. Proposals that dealt with direct emissions like greenhouse gas emissions and net-zero targets were more likely to pass (7 out of 14 did) than proposals that dealt with indirect emissions</p>
<p class="p1">The study also found that shareholder proposals asking for racial equity audits were surprisingly popular, with average support going from 33% in 2021 to 45% in 2022. 8 out of 22 of these proposals passed with the majority of votes.</p>
<p class="p1">These environmental and social trends build off of what we’ve seen in the past few years. US SIF <a href="https://www.ussif.org//Files/Trends/2022/Trends%25202022%2520Executive%2520Summary.pdf"><span class="s1">analyzed</span></a> shareholder proposals spanning 2020 to 2022 and found that the issues that prompted the most proposals were: labor and equal employment opportunity (with 311 proposals), corporate political activity (with 288 proposals), and climate change (with 265 proposals).</p>
<p class="p2"> </p>
<p class="p1"><strong>Notable vote: Jack in the Box’s sustainable packaging</strong></p>
<p class="p1">Speaking of breaking records, one especially notable vote came from the shareholders of Jack in the Box. Investor Green Century Funds put together a shareholder proposal asking Jack in the Box to speed up its sustainable packaging efforts, arguing that the company had fallen behind the sustainable packaging initiatives of other fast food companies.</p>
<p class="p1">What makes this vote notable is that it passed with 95% of the vote <em>despite</em> Jack in the Box recommending that shareholders vote against it. This is <a href="https://www.greencentury.com/majority-of-jack-in-the-box-shareholders-support-green-century-packaging-proposal/"><span class="s1">the largest margin</span></a> that an environmental- or social-related proposal has passed with a company opposing it — showing that certain investors really care about environmental impact, and are willing to push companies that drag their feet on these issues.</p>
<p class="p2"> </p>
<p class="p1"><strong>Investors paying close attention to governance</strong></p>
<p class="p1">Environmental and social issues were in the spotlight, but so was governance. According to <a href="https://www.ey.com/en_us/board-matters/four-key-takeaways-from-the-2022-proxy-season#accordion-content-1941053843-0"><span class="s1">EY</span></a>, shareholders asked for more board oversight and disclosures when it came to ESG issues, and some companies responded by citing ESG in director qualifications.</p>
<p class="p1">EY also notes that despite the signals that activist investors would challenge more company-picked board nominations, the opposition only went up by a small percentage. The average vote <em>against</em> S&P 500 directors was 4.2% in 2022, which was only up a little bit compared to the 3.9% average in 2021.</p>
<p class="p2"> </p>
<p class="p1"><strong>Say on pay decline</strong></p>
<p class="p1">One particularly interesting trend in governance is the decrease in support for company “say on pay” votes. If you look at previous proxy years, you’ll notice that in general, say on pay votes received overwhelming support. But that may be starting to chip away.</p>
<p class="p1">According to PwC, “Average support at companies in the S&P 500 and Russell 3000 hit record lows since the vote was introduced 11 years ago, at 87% and 90% respectively. In the S&P 500, 21 companies failed their say-on-pay vote, with 207 companies receiving below 70% support. The number of failed votes at Russell 3000 companies hit 71.”</p>
<p class="p1">While 70% may still seem like a high percentage of the vote, this represents a stark contrast when compared to before.</p>
<p class="p1">This trend is exemplified by the controversy surrounding Apple’s 2022 say on pay vote for its CEO Tim Cook. Last year, Institutional Shareholder Services (ISS), one of the largest proxy advisory firms, <a href="https://www.reuters.com/technology/apple-shareholder-iss-urges-vote-against-ceo-cooks-bonus-2022-02-16/"><span class="s1">asked Apple investors to vote against</span></a> Tim Cook’s compensation, saying there were issues with how his equity was awarded.</p>
<p class="p1">Apple’s say on pay vote still received a majority with 64% approval, but this was down from 95% in 2021. In response, Cook <a href="https://www.cnbc.com/2023/01/12/apple-ceo-tim-cook-receives-a-40percent-pay-cut-after-shareholder-vote.html"><span class="s1">voluntarily cut his own salary by 40%</span></a> at the start of 2023.</p>
<p class="p1">This is potentially a big deal, because if Tim Cook isn’t safe from say on pay opposition — the same Tim Cook that leads the largest US company by market cap, that grew his company’s share price by around 1,000% since becoming CEO in 2011 — this could have big implications for the compensation of other CEOs if their shareholders believe they are being unfairly paid.</p>
<p class="p1">It could be interesting to see how support for say on pay changes in 2023, or if it changes at all. But all of these trends from 2022 could be worth keeping an eye on in 2023. These trends could just be symptoms of what investors are thinking about during a specific year, or they could be hinting at a larger movement.</p>
<p class="p2"> </p>
<p class="p3" style="text-align: center;"><strong>• • •</strong></p>
<p class="p4"><em>The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Employing ESG strategies may not result in favorable investment performance. Securities offered through Fennel Financials, LLC. Member</em><a href="http://finra.org/"><em> </em><span class="s2"><em>FINRA</em></span></a><a href="https://www.sipc.org/"><em> </em><span class="s2"><em>SIPC</em></span></a><em>. </em></p>
<p class="p5"> </p>
Shareholder Activism
ESG
Investing
Highlights From Proxy Season 2022
Let's take a look back at some of the things that happened during last year's AGM season.
21 Mar, 2023
5 min read
<p class="p1">Want to invest in bonds while having a positive impact on the world? It may be time to get familiar with green bonds, social impact bonds, and sustainability bonds.</p>
<p class="p1">As a quick recap, <a href="https://www.investopedia.com/terms/b/bond.asp"><span class="s1">bonds</span></a> are essentially loans or IOUs that provide the borrower (such as governments or corporations) with external funds to finance long-term goals. When a person invests in a bond, they’re basically loaning money to that borrower, who will pay back the principal amount plus interest over time. An example of this would be municipal bonds, which local governments issue to finance essential services such as infrastructure projects.</p>
<p class="p1">Similar to how <a href="https://fennel.com/fennel101/esg"><span class="s1">environmental, social, and governance (ESG)</span></a> has taken over the stock market, impact investors are looking for ways to promote environmental or social good with their investments into the debt market (i.e. bonds). This has led to new asset classes like green, social, and sustainability bonds.</p>
<p class="p1">Let’s look into these three types of bonds.</p>
<p class="p2"> </p>
<p class="p1"><strong>Green Bonds</strong></p>
<p class="p1">A green bond is a type of financial instrument that lends money to finance projects that are meant to help the environment.</p>
<p class="p1"><span class="s1"><a href="https://www.eib.org/attachments/fi/eib-cab-sab-presentation.pdf">The first AAA-rated green bonds</a></span> were issued in 2007 by the European Investment Bank and World Bank. This capital funded both renewable energy and energy efficiency projects with the goal of climate change mitigation.</p>
<p class="p1">Since market inception, the green-labeled bond market has ballooned to over $1 trillion cumulative issuance with an average <a href="https://www.climatebonds.net/market/explaining-green-bonds"><span class="s1">annual growth rate of 95%</span></a>. Green bonds are wildly popular and robust, channeling funding towards things like electric transportation infrastructure, research & development of low-carbon technologies, water supply management, wastewater collection and treatment, pollution prevention and control, protection and restoration of biodiversity and ecosystems, and sustainable forest management. There’s even a subcategory of green bonds called “blue bonds” that focuses on clean water and ocean ecosystem preservation/restoration.</p>
<p class="p1">In one of the first green bond issuances of 2023, <a href="https://www.reuters.com/markets/rates-bonds/hong-kong-raises-58-bln-green-bonds-term-sheets-2023-01-05/"><span class="s1">Hong Kong</span></a> announced that it raised $5.8 billion in green bonds, which is intended to fund the sustainable economic development of the region. Not a bad start to the year.</p>
<p class="p2"> </p>
<p class="p1"><strong>Social Impact Bonds</strong></p>
<p class="p1">Social impact bonds are like green bonds, except instead of providing funding to environmental initiatives, they are meant to finance social services and drive positive social outcomes.</p>
<p class="p1">Geoff Mulgan, then CEO of Young Foundation, is credited with coining the term “<a href="https://efinancemanagement.com/investment-decisions/social-impact-bonds"><span class="s1">social impact bond</span></a>.” The<a href="https://www.oecd.org/cfe/leed/UnderstandingSIBsLux-WorkingPaper.pdf"><span class="s1"> first social impact bond</span></a> launched in 2010 by United Kingdom-based Social Finance Ltd. with the goal of reducing recidivism (which is when someone who served prison time commits another crime). Since then, the market has <a href="https://www.pimco.com/en-us/resources/education/understanding-green-social-and-sustainability-bonds/"><span class="s1">expanded the range of possibilities for social impact bonds</span></a>, addressing issues facing low-income people and the unemployed, migrants, women and/or marginalized genders, people with disabilities, displaced persons, and other communities in need. Social impact bonds finance actions such as improving food security and sustainable food systems, piloting programs around socioeconomic advancement, building affordable housing, increasing access to essential services, and building affordable basic infrastructure.</p>
<p class="p1">While not as prevalent as green bonds, the market for social impact bonds is still rapidly growing. <a href="https://www.brookings.edu/wp-content/uploads/2020/09/Impact_Bonds-Brief_1-FINAL.pdf"><span class="s1">Brookings reported</span></a> that as of July 2020, at least 194 social impact bonds have been contracted in 33 different countries, representing over $421 Million in upfront investment and over $460 Million in total outcome funding committed.</p>
<p class="p2"> </p>
<p class="p1"><strong>Sustainability Bonds</strong></p>
<p class="p1">You can think of sustainability bonds as a combination of green and social impact bonds.</p>
<p class="p1">Sustainability bonds finance projects that have both positive environmental and social outcomes. The United Nations <a href="https://sdgs.un.org/goals%23history"><span class="s1">17 Sustainable Development Goals</span></a>, adopted by member states in 2015, takes a systems-approach to conceptualizing the interlinking social and environmental themes we need to collectively address in order to achieve peace and prosperity for people and the planet. Sustainable bonds support projects in multiple SDG areas. From <a href="https://www.environmental-finance.com/content/the-green-bond-hub/the-2020s-the-decade-of-sustainable-bonds.html"><span class="s1">2017 to 2023</span></a>, we saw a massive increase in sustainable bond issuance from $200 billion to nearly $1.5 trillion.</p>
<p class="p1">The green, social, and sustainability bond markets are experiencing rapid growth, and thus have to deal with some growing pains, grappling with finding standardized policies and procedures around transparency, impact measurement, and reporting. But the growth of these bonds are exciting, as they potentially offer a new asset class for impact investors to look into.</p>
<p class="p2"> </p>
<p class="p2"> </p>
<p class="p1"><span class="s2"><em>Risk Considerations:</em></span></p>
<p class="p1"><em>There is no assurance that a Portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the Portfolio will decline and that the value of Portfolio shares may therefore be less than what you paid for them. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, you can lose money investing in this Portfolio. Please be aware that this Portfolio may be subject to certain additional risks. Fixed income securities are subject to the ability of an issuer to make timely principal and interest payments (credit risk), changes in interest rates (interest-rate risk), the creditworthiness of the issuer and general market liquidity (market risk). In a rising interest-rate environment, bond prices may fall and may result in periods of volatility and increased portfolio redemptions. In a declining interest-rate environment, the portfolio may generate less income. Longer-term securities may be more sensitive to interest rate changes. ESG strategies that incorporate impact investing and/or Environmental, Social and Governance (ESG) factors could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. As a result, there is no assurance ESG strategies could result in more favorable investment performance.</em></p>
<p class="p2"> </p>
<p class="p3" style="text-align: center;"><strong>∙ ∙ ∙</strong></p>
<p class="p4"><em>The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Employing ESG strategies may not result in favorable investment performance. Securities offered through Fennel Financials, LLC. Member </em><a href="http://finra.org/"><span class="s1"><em>FINRA</em></span></a><em> </em><a href="https://www.sipc.org/"><span class="s1"><em>SIPC</em></span></a><em>. </em></p>
ESG
Environmental
Social
Investing
Green, Social Impact, and Sustainability Bonds are Financing Public Benefit
Want to invest in bonds while having a positive impact on the world?
30 Mar, 2023
4 min read
<p class="p1">Tax cuts are often <a href="https://abcnews.go.com/Business/tax-codes-rich-richer-tax-laws/story?id=78182056"><span class="s1">criticized</span></a> for helping the rich more than the poor, and further increasing wealth and income inequality in America. The <a href="https://www.law.cornell.edu/wex/tax_cuts_and_jobs_act_of_2017_(tcja)"><span class="s1">Tax Cuts and Jobs Act of 2017</span></a> (TCJA) faced these same criticisms.</p>
<p class="p1">A <a href="https://www.policygenius.com/taxes/who-benefited-most-from-the-tax-cuts-and-jobs-act/"><span class="s1">2021 study</span></a> found that needy families received the least savings as a proportion to their income, while wealthy families received the most. Corporations, on the other hand, were by far the biggest winners from these tax cuts, according to that study. An <a href="https://www.brookings.edu/policy2020/votervital/did-the-2017-tax-cut-the-tax-cuts-and-jobs-act-pay-for-itself/"><span class="s1">analysis by the Brookings Institute</span></a> found that the TCJA also led to a budget shortfall for the federal government, which can hinder the government’s ability to provide important economic programs for millions of struggling Americans.</p>
<p class="p1">When the TCJA passed, most of the media focused on these tax cuts, however, the new law also had one provision that flew under the radar: the creation of <a href="https://opportunityzones.hud.gov/"><span class="s1">Opportunity Zones</span></a>.</p>
<p class="p1">The “Qualified Opportunity Zone” designation is a label that local governors give to economically-distressed areas, in order to get investors to invest in that community. They incentivize investors to do this by giving them <a href="https://www.irs.gov/credits-deductions/businesses/opportunity-zones"><span class="s1">the tax benefit</span></a> of deferring their capital gains taxes. Opportunity Zones could provide socially-conscious investors with a new avenue to create impact, and may prove to be a silver lining to what critics feel was an out-of-touch policy in TCJA. However, the true potential is yet to be seen.</p>
<p class="p1">After TCJA passed, state and local governments were tasked with designating which low-income communities would become Opportunity Zones based on US Census data. Many local governments strategically selected their Opportunity Zones to overlap with other census-tract-based economic development programs like <a href="https://www.cdfifund.gov/programs-training/programs/new-markets-tax-credit"><span class="s1">New Market Tax Credits</span></a>, a program which also attracts private capital to distressed communities.</p>
<p> </p>
<h4><strong>How does one invest in an Opportunity Zone?</strong></h4>
<p class="p1">Numerous <a href="https://www.nerdwallet.com/article/investing/qualified-opportunity-funds"><span class="s1">Qualified Opportunity Funds</span></a> (QOF) were set up in order to help facilitate investments in small businesses and real estate developments located within these Opportunity Zones. (You check out a database of Qualified Opportunity Funds <a href="https://opportunitydb.com/funds/"><span class="s1">here</span></a>).</p>
<p class="p1">But these funds have a few rules. All investments in either small businesses or property developments must be equity-based. Real estate developments must include substantial rehabilitation — a Qualified Opportunity Fund cannot simply buy up distressed properties and leave them as such, they have to improve these areas. “Sin businesses,” such as liquor and tobacco stores are not eligible investments.</p>
<p class="p1">These rules are partially why many Qualified Opportunity Funds <a href="https://www.costar.com/article/936063478/opportunity-zone-fundraising-seen-surging-to-record-10-billion-this-year"><span class="s1">opt to invest in real estate</span></a> over small businesses, despite the fact that investing in small businesses <a href="https://eig.org/opportunity-zones/"><span class="s1">has the potential</span></a> to create a larger impact in economically-distressed areas by providing services and jobs.</p>
<p class="p1">Regardless, there is still an opportunity to drive impact. So how do investors get involved? Remember, the Opportunity Zone designation has tax benefits for capital gains, so an investor who wants to get those benefits can <a href="https://www.irs.gov/newsroom/opportunity-zones"><span class="s1">transfer recent capital gains proceeds</span></a> into a Qualified Opportunity Fund.</p>
<p class="p1">According to <a href="https://www.irs.gov/newsroom/opportunity-zones"><span class="s1">the IRS</span></a>, this is the tax benefit of doing so:</p>
<p class="p4"><em>“If the investor holds the investment in the QOF for at least 10 years, the investor is eligible to elect to adjust the basis of the QOF investment to its fair market value on the date that the QOF investment is sold or exchanged.”</em></p>
<p class="p1">That may be a little complicated to decipher, but it essentially means that investors who hold their Opportunity Fund Investment for at least 10 years don’t have to pay <span class="s2">any capital gains produced through their investment</span>.</p>
<p class="p1">Of course, paying no capital gains tax is a big incentive for investors. Some research has shown that this <a href="https://www.bloomberg.com/news/articles/2020-06-25/opportunity-zones-don-t-work-can-they-be-fixed"><span class="s1">has invited bad actors to exploit the benefit</span></a> for its tax purposes, without caring much about the impact of their investments. Qualified Opportunity Funds that focus too much on cutting costs and maximizing profits run the risk of leading to slumlords doing the legal bare-minimum to stay operational. Alternatively, some well-meaning funds may fail to involve community stakeholders, and inadvertently lead to gentrification or lead to families being priced out of their neighborhoods.</p>
<p class="p1">Many argue for a <a href="https://www.americanprogress.org/article/new-research-adds-to-evidence-that-opportunity-zone-tax-breaks-are-costly-and-ineffective/"><span class="s1">policy update</span></a> that puts up guardrails, increases transparency and accountability, and shifts the benefits of this policy, so it’s not only the wealthy investors who have something to gain.</p>
<p class="p1">Still, there are a few Qualified Opportunity Funds that hold themselves to higher standards of triple bottom line impact. Efforts by<a href="https://www.businesswire.com/news/home/20220829005695/en/Arctaris-Releases-Annual-Impact-Report-Achieving-Record-Growth"><span class="s1"> Arctaris Impact Investors,</span></a> Woodforest CEI-Boulos Opportunity Fund, <a href="https://www.revozcapital.com/news/2021/1/13/revoz-capital-announces-1b-social-impact-initiative-and-leadership-council"><span class="s1">Revitate</span></a>,<a href="https://eig.org/eig-oz-webinar-series-evaluating-the-impact-of-opportunity-zones-investments/"> <span class="s1">Catalyst Opportunity Fund, and JTC Americas</span></a> show that high-impact OZ strategies are feasible and profitable.</p>
<p class="p1">Just like capitalism as a whole, there will always be some groups that look to maximize gain at all cost, while others act sustainably and responsibly — the same goes for Opportunity Funds. But for impact investors who are looking to benefit others, there are opportunities out there to use their wealth as a force for good.</p>
<p> </p>
<p class="p1"><em>Risk Disclosure:</em></p>
<p class="p1"><em>Investing in Qualified Opportunity Funds involves risks such as market loss, liquidity risk, and business risk, to name a few. Consult with a tax professional and attorney to determine if it aligns with your financial goals and risk tolerance before investing. Read the fund's documentation carefully and remember that tax benefits may not justify the potential risks.</em></p>
<p> </p>
<p style="text-align: center;"><em><strong>∙ ∙ ∙</strong></em></p>
<p><em><span style="font-weight: 400;">The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member FINRA SIPC.</span></em></p>
Social
Investing
Opportunity Zones Incentivize Impact Investing Through Tax Benefits
The Tax Cuts and Jobs Act of 2017 helped create a new type of impact investing.
20 Apr, 2023
3 min read
<p class="p1">On April 5, 2012 President Barack Obama signed the <a href="https://www.sec.gov/spotlight/jobs-act"><span class="s1">Jumpstart Our Business Startups (JOBS) Act</span></a> into law. Among loosening oversight and regulations on small businesses, the JOBS Act legalized equity crowdfunding to help drive technological innovation and high-growth enterprises in the United States.</p>
<p class="p1">Equity crowdfunding provides both a new method for raising capital for privately-owned businesses, and a new asset class for investors. It involves business owners selling a number of company shares to a pool of investors through regulated online crowdfunding platforms. This type of crowdfunding is different from donation crowdfunding (like <a href="https://www.gofundme.com/"><span class="s1">GoFundMe</span></a>) and loan crowdfunding (like<a href="https://www.kiva.org/"><span class="s1"> Kiva</span></a>). With equity crowdfunding, startups looking to fundraise have new opportunities to tap into sources of capital, while non-accredited investors can finally break into a small-scale form of angel investing.</p>
<p class="p1">Similar to the venture capital field, equity crowdfunding investors buy small shares of early-stage startups to hold for a long time horizon. This is generally due to the fact that crowdfunding investors only see returns in the event of an Initial Public Offering, acquisition by a larger company, reverse buyout, or some other qualifying event. However, this form of investing closely resembles venture capital investing, and chases the same goal of investing in the next high-growth tech company.</p>
<p class="p1">Of course, there is always the risk of not seeing returns for many years, or investments losing value. It’s important to keep this in mind.</p>
<p class="p1">Equity crowdfunding effectively democratized the venture capital and angel investing spaces, once reserved for high-net worth individuals based primarily in Silicon Valley, New York City, and other select cities. Paired with the widespread use of social media platforms such as Facebook, Instagram, LinkedIn, Reddit, and Twitter, equity crowdfunding <a href="https://www.grandviewresearch.com/industry-analysis/crowdfunding-market-report"><span class="s1">has introduced a new generation</span></a> of digitally-literate Millennials and Zoomers to the world of startup investing. In 2018, <a href="https://www.forbes.com/sites/forbesagencycouncil/2021/12/20/the-meteoric-rise-of-equity-crowdfunding/?sh=60fa778c4d41"><span class="s1">equity crowdfunding drove</span></a> $74M in startup capital to companies, with an additional $100M raised the very next year. Then, while a portion of the financial sector struggled through the pandemic, equity crowdfunding accelerated, channeling a staggering $211M in 2020.</p>
<p class="p1">Now more people can participate in this new asset class for relatively small amounts (like $100 investment minimums) depending on the platform used. We have yet to see how much equity crowdfunding will influence inter-generational wealth creation in working and middle class families, nonetheless it is refreshing that access and opportunities in startup investing has increased for a wider array of investors from diverse socioeconomic backgrounds.</p>
<p class="p1">If you’re looking to try investing through equity crowdfunding, it’s important to know that each of the platforms have their own rules, investment minimums, and selection of startup companies. If you’re a startup founder looking to raise equity crowdfunding, be sure to review the deal terms. There are several equity crowdfunding platforms out there, including <a href="https://www.startengine.com/"><span class="s1">StartEngine</span></a>, <a href="https://www.seedinvest.com/"><span class="s1">SeedInvest</span></a>, <a href="https://microventures.com/"><span class="s1">MicroVentures</span></a>, <a href="https://wefunder.com/"><span class="s1">Wefunder</span></a> and <a href="https://republic.com/"><span class="s1">Republic</span></a>.</p>
<p class="p1">While the equity crowdfunding space is still in its infancy, its meteoric rise indicates that it’s worth keeping an eye on. On top of this, there are many startups that have benefited from the new model. For example, startup company <a href="https://techcrunch.com/sponsor/seedinvest/the-next-era-of-equity-crowdfunding-is-here-and-its-not-just-for-seed-stage-deals-anymore/"><span class="s1">NowRx used an equity crowdfunding strategy</span></a> to raise capital for both its official launch and an aggressive scale-up during the height of the COVID-19 pandemic. It raised a $750K seed round in 2017, then a $7M series A, and then an impressive $20M series B — primarily on the StartEngine platform.</p>
<p class="p1">Equity crowdfunding is expected to grow, with experts <a href="https://www.prnewswire.com/news-releases/crowdfunding-market-to-grow-by-usd-196-36-billion-during-2021-2025--13-86-year-over-year-growth-in-2021--technavio-301249041.html"><span class="s1">predicting almost $200B growth</span></a> in market share from 2021 to 2025. Whether you’re a CEO looking to raise money or an investor trying to break into the private market, equity crowdfunding has proven itself as a viable alternative to traditional channels, some of which have been <a href="https://medium.com/democratizing-finance/equity-crowdfunding-is-creating-opportunity-for-minority-women-owned-startup-founders-3cfba591374c"><span class="s1">marred by gatekeeping and institutionalized bias</span></a>.</p>
<p class="p1">Similarly, equity crowdfunding may serve as a boon for diverse founders. Despite the rhetoric from the VC industry claiming to support minority groups, <a href="https://www.cnbc.com/2020/10/07/black-and-latinx-founders-have-received-just-2point6percent-of-vc-funding-in-2020-so-far.html"><span class="s1">a measly 2.6% of VC funding</span></a> went to Black and latinx founders from 2015 to 2020. Meanwhile, <a href="https://www.bloomberg.com/news/articles/2022-01-11/women-founders-raised-just-2-of-venture-capital-money-last-year"><span class="s1">only 2% of VC money</span></a> in 2021 went to female founders. And on the investor side, <a href="https://www.theinformation.com/articles/the-most-and-least-diverse-venture-capital-firms"><span class="s1">white men represent 53% of all VC investors</span></a> and control a whopping 93% of all VC dollars. In comparison, <a href="https://www.startengine.com/blog/venture-capital-vs-equity-crowdfunding/"><span class="s1">33% of startups on StartEngine</span></a> have a BIPOC founder and <a href="https://twitter.com/joinrepublic/status/971828497667842049"><span class="s1">44% of all funds raised on Republic</span></a> went to female founders.</p>
<p class="p1">The “old boys club” may have historically controlled access to VC money but along came equity crowdfunding — both a technological and legislative innovation that has started to disrupt the system. Equity crowdfunding has the potential to knock down barriers, and provide both access to capital and investment opportunities to a wider variety of people, connecting diverse founders with diverse investors.</p>
<p class="p2"> </p>
<p class="p1"><em>Crowdfunding also has significant risks to consider such as liquidity risk, risk of loss, fees and expenses, limited information and more. Crowdfunding offers are speculative and investors should be able to afford and be prepared to lose their entire investment. For more information, view </em><a href="https://www.sec.gov/oiea/investor-alerts-bulletins/ib-crowdfunding"><span class="s2"><em>Investor Bulletin: Regulation Crowdfunding for Investors.</em></span></a></p>
<p style="text-align: center;"><br /><em><strong>∙ ∙ ∙</strong></em></p>
<p><em><span style="font-weight: 400;">The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. This is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Employing ESG strategies may not result in favorable investment performance. Securities offered through Fennel Financials, LLC. Member</span></em> <a href="http://finra.org/"><em><span style="font-weight: 400;">FINRA</span></em></a>, <a href="https://www.sipc.org/"><em><span style="font-weight: 400;">SIPC</span></em></a><em><span style="font-weight: 400;">. </span></em></p>
Social
Investing
Equity Crowdfunding: The Democratization of Startup Investing
Equity crowdfunding allows more people to participate in early stage startup investing.
27 Apr, 2023
3 min
Take back the power of your investment