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How Dimensional Funds help you align your ethics with your investment goals


By Stuart Ritchie - June 10, 2021

Scientists, industries, governments, and society in general are looking for ways to improve people’s standard of living.

While avoiding environmental damage.

You’re likely more conscious than ever of what you eat.

How much plastic you’re using.

And where your products come from.

But how aware are you of where your money is invested?

Before I begin, I want to thank Adam Dalby for his expert insights on this piece.

Adam is a UK-qualified financial planner with over 10 years of experience and has worked in New York, Dublin and Dubai.

Adam felt this topic is important to address as people are becoming more focussed on environmental issues.

However, the challenge of balancing shorter-term economic goals with longer-term concern for the environment presents difficult questions:

How long of a vision should be considered?

What should the current generation’s legacy be for future generations?

What financial losses might be faced if action is not taken?

Investors are likely asking themselves the same questions.

Many want to align themselves with companies or industries that share their values.

This has given rise to ESG investing – an approach for those who care about how their money is invested and how it impacts the world.

It requires a careful balance between suitability and sustainability.

So what is ESG?

Broken down, ESG stands for:

  • Environmental challenges (e.g. fossil fuels, greenhouse gases, pollution, emissions, environmental issues, climate change, “going green”, use of natural resources, etc.);
  • Social factors (e.g. human rights, child labour, equal opportunity employers, etc.);
  • Governance (e.g. company management and corporate governance, how boards operate, partner remuneration, corruption, etc.).

Included, are sin stocks such as tobacco, gun or alcohol companies.

Historically ESG funds were expensive, hard to access and usually only available through small boutique fund houses.

That's no longer the case and big asset managers now offer them too.

Our preferred option when it comes to ESG is Dimensional Fund Advisors and here’s why.

Aligning your ethics with your investment goals

As an investor, you are either in your accumulation phase (investing over the long-term) or in the consumption phase (maintaining a certain standard of living through retirement).

Either way, to achieve your goals, you need a robust and well-diversified portfolio tailored to you and your specific objectives, time frame and appetite for risk.

For sustainable investors, there are additional factors to consider.

Dimensional’s investment strategy is broadly diversified, based on sound investment principles, and efficiently implemented.

Certain strategies have been tailored to address the needs of clients with particular social considerations, such as the exclusion of tobacco companies or firms involved with gambling, for example.

They have also helped clients with sustainability concerns through the US Sustainability Core 1 and the International Sustainability Core 1 equity funds.

Since the funds were launched, there’ve been advances in knowledge and awareness of sustainability topics so Dimensional has taken their approach one step further.

They use internal, as well as third-party research, to collect quantitative data to systematically evaluate companies on sustainability issues.

At the industry level, a sustainability scoring system is applied using multiple variables to compare companies within the same industry.

Sustainability scores include a range of environmental factors which help shift capital from companies with the worst scores toward companies with the best scores.

Here’s how the scores are allocated at the industry level:

sustainability scoring framework

This helps investors reduce their exposure to companies with a negative impact on the environment.

emissions variables

Sustainability is about more than just emissions, however.

The strategy also penalises companies based on other factors and variables.

other environmental and social sustainability variables

ESG investing has gained plenty of attention among investors.

Dimensional gives investors peace of mind knowing their money is not only working for them, but working for the environment too.

Yet despite these global movements towards more sustainable solutions, financial services have been slow to adapt.

Not all financial planners are able, or willing, to help investors invest in a way that keeps their environmental concerns at the forefront.

It’s why I’d like to leave you with this final thought today…

Are your investments set up to uphold your individual values?

If not, what’s standing in your way of making that happen?

Adam CTA - Second Opinion

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