The first Earth Day was celebrated in 1970—a time when society was just beginning to focus on the negative impacts of human behavior on the environment. The goal: to inspire all Americans to take action to reduce air and water pollution. In the 50 years since, Earth Day has grown to become a global movement, and the focus has expanded to include today’s most pressing environmental topic: global warming.

As climate concerns accelerate, the need to create a personal and positive impact on the environment has become a hot topic among our clients as well. For years, we have been exploring ESG funds, a growing group of investment vehicles that include companies that meet strict environmental, social, and governance requirements. Only recently, however, have we identified an approach that we feel balances the desire to invest with ESG intent while also adhering to our high standards for a well-constructed and philosophically sound portfolio.

This Earth Day, we are pleased to announce that the Leisure Capital Management ESG Portfolio is ready and available to all our clients.

The Leisure Capital ESG portfolio is designed specifically to support the desire to make targeted investments in companies with strong ESG ratings, while simultaneously helping to reduce the risk of these investments and support long-term growth. While we know this approach won’t be right for every client, we are confident that those who include ESG as part of their personal mission will see great value in this new offering. Whether you are new to the idea of ESG investing or you’ve been looking for the ‘right’ ESG portfolio for some time, we invite you to learn more about ESG investing and our unique approach to help you decide if our ESG portfolio is right for you.

What is ESG?
Though ESG investing has been around even longer than Earth Day (ESG first emerged back in the 1960s), the concept is quite new to many investors. At the highest level, the acronym refers to ‘environmental’ (how companies support efforts to conserve natural resources and protect the environment), ‘social’ (how they manage relationships with their employees, suppliers, clients, and the community), and ‘governance’ (how their corporate standards support conscious leadership, risk controls, and shareholder rights). ESG supports the desire to invest in companies that adhere to these ideals.

Is ESG just feel-good marketing?
It seems everyone, everywhere is marketing products that are ‘earth friendly.’ That’s also true in the investment community where, seeing the number of investors seeking ESG options increasing, some firms choose to engage in the dubious practice of ‘greenwashing’—labeling investment products as ESG when the investment process and portfolio holdings are not materially different from other traditional offerings. Unfortunately, greenwashing remains prevalent, and many products labeled as ESG are not what they claim to be.

At LCM, our ESG portfolio is built from the ground up based on real knowledge and a carefully constructed methodology. To increase our knowledge of ESG, the Leisure Capital Investment Committee made it a priority to have at least one member earn the Chartered SRI Counselor (CSRIC^®) designation. Patrick Maxwell received the CSRIC designation in 2021, gaining the knowledge and context to discern ‘greenwashed’ offerings from those that provide a true ESG option. Only those vehicles that offer proven ESG value are included in our portfolio. Our professional designations and investment process enable us to confidently identify and rule out greenwashed products. The result: we offer a well-constructed ESG portfolio that allows you to align your values with your investment strategy.

What is LCM’s ESG approach?

There are many methods for investing in ESG. We committed to our approach only after considerable research in the ESG space, including studying the ‘why, what, and how’ of ESG investing, comparing various methodologies, and investigating a vast menu of available ESG-specific funds. Based on this due diligence, we carefully honed our approach and identified areas where we believe we can add unique value. Here is the basic structure of the Leisure Capital Management ESG portfolio:

• Our ESG Portfolio is composed of carefully selected ESG mutual funds. To reduce risk and ensure consistent rebalancing of assets, we do not invest in individual stocks or other vehicles for our ESG offering. While this does restrict our ability to fine tune the portfolio to address specific ESG concerns of one client, we feel strongly that investing in mutual funds is the most suitable approach for the majority of our clients who seek to balance risk and reward without compromising their ESG ideals.
• We research ESG investment funds by casting a wide net to identify relevant ESG-labeled investment vehicles from a variety of sources. We then investigate this pool of funds, evaluating each candidate in a pass/fail fashion, with a ‘pass’ indicating that ESG is probablyincluded in the fund’s investment approach. Next, we perform the same quantitative process and rigor that is applied to investment selections in each of our other portfolios. Funds that make it to the last round of evaluation are researched deeply and individually engaged to ensure the investment approach and the ESG approach are highly credible and philosophically sound. Finally, the funds that are considered best-in-class are chosen for inclusion in our ESG portfolio.
• We take a balanced approach to ESG. While some investors may be comfortable with an all-in approach to ESG, the majority of our clients appreciate our history of carefully balancing risk and reward. Among the wide range of investment options that exist within the ESG investment landscape, some only include best-in-class companies that are doing the most to create a positive impact in the world, while others weave ESG factors into their investment process to analyze risk and select companies based on a wider range of investment considerations. While we lean toward funds that focus on best-in-class ESG companies when appropriate, we strive to add value by striking a balance by including investments that we believe are likely to continue to deliver solid financial returns for clients, as well as investments that are more focused on benefitting society and the planet with less regard for financial return. By avoiding funds that may produce amazing financial returns but include companies that damage the planet or society in the process, as well as funds with the highest ESG ratings that deliver lackluster returns, we have created a portfolio that we believe delivers the best of both worlds. (For more on our approach to portfolio protection, read How a balanced portfolio protects from downside risk.)

Why hasn’t LCM offered an ESG approach in the past?

Investing in a way that supports ESG concerns while also balancing future returns involves considerable tradeoffs. Historically, the limited track record offered by mutual funds and ETFs using ESG strategies, as well as the nascent nature of the strategy as a whole, led us to be cautious in offering the strategy to clients. In the past, we were not confident in an ESG strategy portfolio’s ability to strike the right balance between risk and reward. After diligent research and testing, we believe we can now offer a proper balance using the approach in our ESG Portfolio.

A Word About Investment Risk

ESG investments would not be as popular as they are today if they performed on a sub-par level. Academic studies comparing ESG investment performance against traditional investment approaches demonstrate that, at worst, ESG approaches sacrifice no performance. The studies demonstrate that in many cases, ESG strategies may outperform traditional approaches.

Leisure Capital acknowledges these studies, but we remain cautious regarding the continued success in ESG investing. For the more than 20 years, we have been helping our clients grow and protect their wealth. During that time, we have seen two major investment styles, Growth and Value, move in and out of favor, often with significant differences in performance between the two. To ensure diversification and avoid overexposing our clients to a single, potentially detrimental, factor, our approach has been to remain relatively balanced between the two styles. When we created our ESG portfolio, we took similar steps to mitigate risk, balancing our approach by seeking ESG funds that demonstrate strong performance track records, and validating their performance both qualitatively and quantitatively. When the funds are combined, we continue to apply quantitative tools to evaluate performance at the portfolio level. If there comes a time when we believe the risk of investing in the ESG portfolio outweighs the reward, we may recommend a shift in strategy.

The time for ESG is now

We are excited to offer an ESG portfolio to our clients, and we believe we’ve taken the steps necessary to remove any ‘rose-colored glasses’ from the process of investing in vehicles designed to help protect the earth by reducing negative impacts on the environment. Many of our clients are enthusiastic about the opportunity to invest in ESG options—without sacrificing the ability to grow and protect their assets. At Leisure Capital, we strive to give you the tools, knowledge, and guidance to invest wisely, live abundantly, and give purposefully. Our ESG portfolio is one more way we are working to enable you to do well while doing good.

To learn more about the Leisure Capital ESG portfolio and explore its place in your personal investment strategy, email Patrick Maxwell at pmaxwell@leisurecapital.com.

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