059: How to Create a Value-Based Portfolio that Performs Well

Growing Your Financial Advisory Practice | Insights for Financial Advisors, Planners and Investment Managers

Is it possible to make investments and get good returns while investing in assets that reflect your values? Today’s guest says that it is. Tim Nash is the founder of Good Investing, an investment planning firm with a focus on sustainable investing.

Tim's blog The Sustainable Economist has inspired thousands of Canadians to invest according to their values with model portfolios to reflect different definitions of sustainable investing. Tim writes a bi-weekly column for The Toronto Star and is regularly featured in publications such as CBC’s The National, BNN Bloomberg’s Market Call, and the Globe and Mail. Listen to the episode to hear what Tim has to say about what’s involved in sustainable investing, what kinds of returns can be expected from those investments, and how Tim approaches helping his clients invest in a way that reflects their values.

Topics Discussed in This Episode:

• What Tim and his firm do (1:09)
• How Tim got into his niche of the industry (3:22)
• Terms of Socially Responsible Investing (8:50)
• Where socially responsible investing is in terms of returns (14:20)
• Tim’s approach to advising and serving clients (20:00)
• Tim’s sliding scale (24:45)
• Tim’s advice for investors (46:19)

Links and Resources:

Good Investing

The Sustainable Economist

Quotes From the Show:

“The number one indicator that is most correlated to financial outperformance is gender diversity on the Board of Directors."

“You don’t need to sacrifice financial performance. You can do at least just as well, and most socially responsible funds have outperformed by a little bit.”

“I very much believe in price discrimination- that some people can afford a higher price, and some people can afford a lower price.”

From his unique business approach to his success in the sustainable investing niche, Tim Nash offers insights backed by years operating in the industry. Advisors at any career stage can benefit from learning from his expertise, along with hearing about the potential performance implications of cultivating a sustainable client portfolio.

Below, we will be discussing three key ideas from today’s episode:

• How Tim Breaks Down Sustainable Investing
• Expected Returns in Sustainable Investing
• How Tim Structures his Business to Serve People from All Walks of Life

To listen to the full episode, find us on iTunes or Stitcher, or listen with the link at the top of this page.

How Tim Breaks Down Sustainable Investing

To discuss the core of Tim’s business, we must first establish what sustainable investing really is. He breaks it down into two different groups: “Doing less evil” and “Doing more good”.

Doing Less Evil

The most common route to socially responsible investing (SRI) that Tim’s clients take is what he refers to as the “doing less evil” route. This style of investing still uses a typical approach: you are investing in large companies with the goal of getting market-rate returns. However, the companies that the client is investing in are vetted according to their values in order to get rid of the least sustainable companies, making sure that their money is being invested using a value-based system.

The beginning of this model relied heavily on negative screening, which focused on excluding specific industries that the client did not want to invest in. A common example of this is a client not wanting to invest in any fossil fuel company.

The model evolved further into relying on ESG analysis, which stands for environmental, social, and government research and analysis. This model evaluates companies based on those key factors to determine if they are acceptable for inclusion in a sustainable investing portfolio.

For example, if a company contributes to pollution with the way they create their products or has a large carbon emission problem, they would fail the environmental analysis. If a company has poor labor standards or lacks diversity on its board of directors, it would not be up to par on its social analysis. If the company spends a lot on political lobbying, it may not qualify for sustainable investing due to the government analysis.

Combining ESG analysis with participation such as shareholder engagement including voting on shares to push the companies toward more sustainable initiatives is what makes up the “doing less evil” model today.

Doing More Good

For those that are extremely committed to sustainable investing, they may opt for the “doing more good” model. This is based less on the traditional goals of financial returns, and more on the intention of investing for the greater good.

Also referred to as impact investing, this model typically contributes to the private side, relying on things such as microfinance, green bonds, community bonds, etc. The investments are usually hyperlocal, impact-focused, and do not put much emphasis on the individual’s financial gains.

Hint: If you want to learn more about value-based investments, check out Episode 39 with Ryan Fraser, where we discuss his approach to charitable giving.

Expected Returns in Sustainable Investing

For potential clients interested in sustainable investing, the main question on their minds is whether or not they would be sacrificing returns in their portfolio by using a socially responsible contribution model. While Tim admits there is no way to predict the future with complete certainty, over the past ten years companies who have good ESG have outperformed those who don’t.

Tim’s clients have experienced high returns on their investments, largely due to major players with poor ESG falling out of popularity in the last 5 years. “My portfolios have done very, very well over the last 5-10 years… a large part of this is due to the fact that we are underweight or zero weight in fossil fuels.”

Even if the energy sector does bounce back causing underperformance, Tim predicts that we will see climate change become more of a common issue, which may favor sustainable investment portfolios. He also notes that since many social funds are overweight in technology and healthcare, they are set up for success in the post-COVID world.

Although there is no definitive answer to how the space will shape up in the future as sustainable investing becomes more and more mainstream, Tim’s clients typically do not have to sacrifice any returns at all, and oftentimes they can expect to slightly outperform traditional portfolios.

Hint: Want to hear more from Tim on the debate around sustainable investment returns? Check out his appearance on Ben Felix’s podcast, where they discuss the economic impacts of SRI in detail.

How Tim Structures his Business to Serve People from All Walks of Life

Tim’s investment planning and coaching business is designed to allow him to serve all Canadians, no matter how large of an investment they can make. He does this with his in-depth investment coaching and education plan, as well as charging an hourly fee based on a sliding scale.

At Tim’s practice, the goal is to educate a client to the point that they are comfortable investing on their own, setting them up for long-term independence and success. The first step is to teach his clients about the space, walking them through the complexities of financial planning so that they are confident in making decisions for their own portfolio.

Next, he works with them to determine where they are on the spectrum of sustainable investing - whether they want to “do less evil” or “do more good”. Once that is established, he coaches them through their options in the sustainable space, explaining the tradeoffs in the industry and empowering them to choose an approach that fits them best.

In the end, they have built their own portfolio based on the values they find most important, and Tim walks them through their first time investing. This unique approach is designed to alleviate the anxiety and fear around first time investing, allowing his clients to have long-term results thanks to him equipping them with confidence to make their own future investment decisions.

In order to ensure that no one is unable to work with him due to cost, he created a pay scale that charges an hourly rate that is based on how much money the client has to invest. This way, he is able to serve clients who would normally have to make these decisions on their own, while still allowing him to profit off of his expertise.

Listen to the full episode to hear about how Tim got into the sustainable investment niche, how he is expanding his business, and the biggest obstacles he has overcome while running his own practice. You can check out the episode at the top of this page, or subscribe on iTunes or Stitcher to make sure you never miss an episode.