By Ryan Brooke, CERTIFIED FINANCIAL PLANNER® Professional, CIO
Environmental, Social, and Governance (ESG) investing has become a hot topic in the financial world. Some investors seek to align their portfolios with their personal values by supporting companies they believe are doing good for the planet, people, or corporate governance.
It’s a noble goal, and one we respect deeply.
At Searcy Financial Services and Allos Investment Advisors, we’ve carefully considered whether to offer ESG or socially responsible portfolios. After extensive research and discussion, we’ve chosen not to provide dedicated ESG investment options at this time.
Here’s why, and why we believe open communication and individualized understanding matter even more:
The Intention Behind ESG Is Powerful
Before we explore the challenges, we want to be clear that we support the intention behind ESG investing. Many of our clients care deeply about causes like environmental sustainability, fair labor practices, and corporate accountability. And we do too. The desire to use your investments to reflect your values is both admirable and understandable.
But translating those values into a clear, consistent investment strategy is where things get complicated.
ESG Investing Is More Complex Than It Appears
Here are some of the key reasons we have decided not to offer ESG portfolios:
- No Universal Definition of ESG
There is no single definition of what qualifies as strong ESG behavior. One rating agency might praise a company for reducing its carbon footprint, while another might penalize it for governance concerns.
The same company can receive very different ESG scores depending on who is doing the rating.
- Data Limitations and Inconsistencies
Even when ESG data is available, it’s often incomplete or inconsistent. Many metrics are self-reported and unaudited, which makes it difficult to fully trust or compare information across companies.
This lack of clarity makes it hard to confidently build an ESG-focused portfolio.
- Greenwashing Concerns
Greenwashing refers to companies overstating or exaggerating their ESG credentials to appear more socially responsible than they really are. Without strict reporting standards, it’s difficult to separate genuine impact from clever marketing.
- Cost and Complexity
Building and managing ESG portfolios requires specialized data, analysis, and ongoing monitoring. These requirements come with additional costs, which would ultimately be passed along to clients. For example, licensing fees for ESG indices tend to be significantly higher than those for traditional benchmarks.
- Unintended Bias and Limited Diversification
Some ESG screening methods unintentionally favor large companies in developed markets, leading to potential concentration risk and reduced diversification.
This could result in higher volatility or missed growth opportunities.
- Unclear Impact
Although ESG investing aims to make a positive difference, measuring its actual effectiveness is difficult. Some studies show that companies in ESG portfolios may perform no better, and sometimes worse, in terms of compliance with labor and environmental regulations.
- Regulatory and Ethical Ambiguity
The rules and standards for ESG investing are still evolving. Even the purpose of ESG is often debated. Some experts argue that ESG is meant to help investors manage risk, not necessarily to drive positive change in the world. That distinction can influence how portfolios are constructed and evaluated.
Personalized Communication Matters More
In the end, ESG investing often comes down to personal interpretation. What one investor sees as socially responsible, another may see as inconsistent or even counterproductive.
That’s why we focus on meaningful conversations rather than standardized ESG solutions.
We believe in getting to know our clients on a deeper level, understanding what they care about, what they want to achieve, and how their financial choices can reflect their values.
If you have strong preferences, such as excluding specific industries like tobacco, firearms, or fossil fuels, we’re always open to that discussion. If your values are better expressed through charitable giving or supporting local causes, we can help you integrate those goals into your financial plan.
Values-based planning doesn’t have to begin and end with your investment portfolio.
Invest With Purpose, Your Purpose
We understand that investing is about more than just financial returns. It’s about building a life that reflects your priorities and values. While we may not offer formal ESG portfolios, we are committed to helping you invest with purpose and integrity.
Our approach is built on clarity, communication, and customization. If socially responsible investing is important to you, we welcome the conversation about how your values can shape your broader financial journey.
Let’s Talk
Have questions or want to explore how to align your money with your mission? We’re always here to help.