Sustainable Investing Is Like Going Out for Dinner

ESG investing was originally designed to manage financial risks, not drive progress. Here’s how to change that.

In investing, it’s not always clear if your money is working to progress anything. That’s the issue with Environmental, Social, and Governance investing - also known as ESG investing.

ESG investing wasn’t designed to solve climate change or advance any topic. It was created to see how external topics could get in the way of a company’s financial performance, not how the company could progress the world we live in.

Let’s talk about two ways of thinking in the context of going out to dinner.

Outside-In

Here is Outside-In, or how ESG investing is currently: You go to your favorite neighborhood restaurant, and the service is slow, the staff seems overworked. You think, “This place isn’t what it used to be”. You’re focusing on how the restaurant’s employees’ actions are affecting you, even if those actions are completely out of their control. Outside-In thinking is saying, “Even though I walk past this restaurant all the time, I can ignore these problems, so no action is needed from me." Even though, if these problems continue, our neighborhood won’t be as nice of a place to live next year. This is how ESG investing works, we are focusing on short-term risks to companies while ignoring the long-term impacts on the broader system.

Inside-Out

Inside-Out is how we can be approaching sustainable investing: You realize the restaurant is struggling because fewer people are dining out, staff is leaving, and every possible ingredient like eggs is more expensive. Inside-Out thinking is, “If I keep coming here, tip well, and bring friends along, I’m bringing back quality for the staff and the food. The restaurant doing well benefits the whole neighborhood and makes my experience better too over time.” This is how we can approach sustainable investing, by supporting companies advancing sustainable progress, investing in lower-carbon-emitting companies, and voting to advocate for change at these companies, while considering the physical risks they will face in a changing world.

The “I’m not coming back here” way of thinking is why ESG funds still hold fossil fuel companies. It’s why the people managing those funds often vote against climate policies at the companies owned by the fund.

At Illuminate, we’re doing things differently. We want to give you a place to say, “Yeah, I’ll keep coming back here,” so we can all see your progress together.