Giving back while investing? Absolutely! ESG funds make it possible.

Many listeners have expressed a desire to align their finances with their values. They're ready to take tangible steps toward making a difference.

Familiar to our regular listeners, ESG stands for environmental, social, and governance. The essence is straightforward: invest in a way that positively impacts causes you care about. This means supporting companies that minimize pollution, empower women, or advance social issues. When you invest this way, your money is actively contributing to meaningful change—literally while you sleep. ESG investing is a simple method to support the change you wish to see, and it's also rewarding financially. According to mutual fund tracker EPFR, ESG-focused funds attracted $61.6 billion from January to June 2020, with many outperforming the DOW and S&P 500 by 10% year-over-year. A report from Wharton School revealed a 59% increase in funds aimed at positively impacting women, with Wall Street investors pouring $4.8 billion into gender-focused funds in 2019, doubling the previous year's investments.

This week, we welcome Eliza Badeau, Vice President of Workplace Thought Leadership at Fidelity Investments, and Nicole Connolly, Head of ESG Investing and Portfolio Manager at Fidelity. (You might recall Nicole from a previous episode!)

Join us as Jean, Eliza, and Nicole discuss the evolving ESG landscape and practical steps for getting involved. They highlight the surge in purposeful investing and the implications of ESG for the broader investment community. Real-world examples demonstrate ESG in action, and the discussion reflects how current events influence ESG investing.

“Our research indicates you don’t have to sacrifice returns for impactful investing,” Nicole shares. “Historically, ESG began with socially responsible funds focused on exclusion. Now, we emphasize inclusionary ESG investing, fostering companies that prioritize environmental responsibility, stakeholder engagement, and sound governance. This strategy helps identify companies built for longevity and success.”

Nicole also introduces Fidelity’s Women’s Leadership Fund, which is outperforming its market indices. This fund includes approximately 120 companies across sectors, all committed to fostering gender diversity.

“I’m increasingly interested in companies that embrace diversity,” she continues. “We evaluate how organizations support underrepresented groups through policies like equal pay, parental leave, and bias training.”

Eliza discusses Fidelity’s efforts to create inclusive experiences for clients and address challenges faced by diverse communities. “Financial wellness varies among groups,” she notes. “For instance, LatinX and Black communities often emphasize family and community in their financial decisions.”

They also share tips for new investors looking to explore ESG. “Visit Fidelity.com and search for ‘ESG investing’ to find informative resources and fund options,” Nicole suggests. “You’ll discover funds focused on women’s leadership, clean water, and environmental initiatives.”

Eliza highlights how social shifts influence investment priorities, especially among Millennials. “They value diversity in ways previous generations haven't, recognizing the intersection of identities and the importance of community support,” she explains.

In Mailbag, Jean and Kathryn answer questions on investing versus mortgage payments, transferring 529 plans, Roth IRA conversions, and prenups without wedding plans. Lastly, Jean covers key steps for a mid-year financial check-up, which everyone should consider!

Transcript

Nicole Connolly: (00:01)
We believe you don't have to sacrifice returns for impact. ESG has transitioned from exclusionary strategies to focusing on companies that embrace sustainability and diverse governance, helping investors seek long-term growth.

Jean Chatzky: (01:15)
Investing insights from Fidelity can guide you toward your financial goals. They offer tools for smarter decisions. Visit Fidelity.com/HerMoney for more.

Jean Chatzky: (01:44)
I love hearing from our listeners and see common themes emerging, like the desire to align money with personal values. Today’s show dives into this important topic.

Jean Chatzky: (01:45)
ESG investing allows you to support causes while seeking returns. ESG principles focus on companies making a positive impact on society and the environment.

Nicole Connolly: (08:05)
ESG investing aligns your capital with your values. It’s about investing in companies limiting environmental impact and prioritizing their stakeholders.

Eliza Badeau: (09:51)
We must consider financial wellness through an inclusive lens, acknowledging how different communities experience money and prioritize their values.

Jean Chatzky: (10:38)
Can you illustrate how financial wellness differs among communities? Specific examples can clarify how different groups achieve their financial goals.

Eliza Badeau: (10:52)
Cultural emphasis on community in LatinX or Black populations shapes their financial objectives, often focusing on supporting family and community initiatives.

Jean Chatzky: (11:35)
Nicole, can this focus on community still yield financial success in ESG investing?

Nicole Connolly: (12:21)
Definitely. We’ve found that investing with purpose doesn't compromise returns. Inclusionary ESG focuses on sustainability and stakeholder engagement.

Jean Chatzky: (14:07)
What criteria do you use to select companies for the fund?

Nicole Connolly: (14:11)
We focus on companies dedicated to gender diversity and broader diversity initiatives, assessing policies like equal pay and parental leave.

Jean Chatzky: (16:42)
Are there benchmarks for evaluating these companies on diversity initiatives?

Nicole Connolly: (17:08)
Finding demographic information can be challenging. We’ve assessed 700 companies using 25 diversity criteria for our internal benchmarks.

Jean Chatzky: (17:58)
We’ll rely on your expertise for that. Now, Eliza, let’s discuss the social changes stemming from recent events.

Eliza Badeau: (19:16)
Millennials and Gen Z are increasingly aware of diversity’s significance. They connect their financial decisions to community support.

Jean Chatzky: (21:01)
The pandemic accelerated trends in ESG investing, revealing a commitment to causes among investors.

Nicole Connolly: (21:33)
Investors in ESG funds displayed greater resilience during market downturns, showing their commitment to these values.

Jean Chatzky: (22:53)
What stories have you heard from investors during these times?

Eliza Badeau: (23:03)
Many underrepresented investors prefer tangible investments, such as supporting their communities or investing in real estate.

Jean Chatzky: (23:53)
It’s vital to help people balance support for their communities with the need for long-term growth.

Jean Chatzky: (24:36)
If you could share one thing about ESG investing, what would it be?

Eliza Badeau: (24:59)
Investing with purpose allows you to grow your savings while doing good.

Nicole Connolly: (25:31)
I'm passionate about creating a better world for my children through responsible investing.

Jean Chatzky: (25:40)
Thank you both for this enlightening discussion.

Jean Chatzky: (25:52)
Now, let’s turn to Kathryn and the mailbag.

Jean Chatzky: (26:00)
So, Kathryn, how was your drive back from Birmingham?

Kathryn Tuggle: (26:00)
It was fantastic! We made a stop in Charleston and had a surprising encounter with an old college friend.

Jean Chatzky: (26:23)
That's wonderful!

Kathryn Tuggle: (26:24)
It truly was a highlight of the trip.

Jean Chatzky: (26:30)
It’s amazing how small the world can be.

Kathryn Tuggle: (26:30)
Absolutely! What are the odds of running into someone you know?

Jean Chatzky: (26:49)
When you’re away from home.

Kathryn Tuggle: (28:18)
I can’t believe he recognized my husband from social media!

Jean Chatzky: (28:35)
That’s incredible!

Jean Chatzky: (28:37)
This is such a fun story!

Jean Chatzky: (28:37)
I’ll need to hear more about your trip later!

Kathryn Tuggle: (28:37)
Definitely!

Jean Chatzky: (28:37)
Thanks for sharing this fun moment!

Jean Chatzky: (28:37)
Let’s return to our discussion about investing and current events.

Kathryn Tuggle: (28:37)
Absolutely! It’s an important topic for our listeners.

Jean Chatzky: (28:37)
Thanks for the insights.

Jean Chatzky: (28:37)
Let’s answer some listener questions.

Kathryn Tuggle: (29:55)
Sure! Our first question comes from Dawn. She asks, should she invest or pay down her mortgage with $25,000? She’s looking for guidance on the financial best choice.

Jean Chatzky: (30:44)
This is a crucial question. With low mortgage rates, investing may yield higher returns, but paying off debt can provide peace of mind. Consider your overall financial picture before deciding.

Kathryn Tuggle: (33:22)
That’s great advice.

Jean Chatzky: (33:23)
I agree. Balancing investment and debt repayment is tricky but vital.

Kathryn Tuggle: (34:26)
Our next question comes from Jennifer about 529 plans and transferring funds. She seeks advice on whether to switch from Virginia to New York’s plan.

Jean Chatzky: (35:48)
Switching can save money on fees and offer better performance. I recommend rolling funds into the New York plan for cost efficiency and tax benefits.

Kathryn Tuggle: (37:29)
Thank you for that valuable insight.

Jean Chatzky: (37:31)
Absolutely! Our last question comes from an anonymous listener regarding Roth IRAs and annuities.

Jean Chatzky: (38:30)
Yes to a prenup! Ensure all necessary legal documents are in order. Maintain financial security for yourself and your family.

Kathryn Tuggle: (42:22)
Thank you for your guidance!

Jean Chatzky: (42:26)
Reminder: We produce two newsletters weekly. Subscribe to stay informed about personal finance!

Jean Chatzky: (45:47)
Thank you for joining us today! Special thanks to our guests for sharing insights on impactful investing. Subscribe to our show on Apple Podcasts and leave us a review!