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If you’re like most people, you don’t want to build wealth at someone else’s expense. There are lots of well-paying jobs at questionable companies and investment opportunities that harm other people.

But you don’t want to feel guilty about building long-term wealth, right? ESG investing promises you to grow your money by buying more sustainable alternatives.

But many now criticize ESG investing and say it doesn’t make much of a positive impact.

In this episode, you’ll find out all about this new way of investing, saving and spending your money—and how to make sure your dollars do the most good for yourself and others!

Want to use your money to improve lives? Listen now!

Show highlights include: 

  • How social change really happens (and why dumping money into “green” stocks won’t change the world) (5:05)
  • The counter-intuitive way to make a positive social impact by buying new outfits (12:33)
  • The odd way we can build an economy the works for everyone (without changing our entire economy (21:30)
  • It’s not about the rate of return (24:10)

Remember to download Grandma’s Top Tips for an Independent Financial Future by dropping into https://grandmaswealthwisdom.com/free/. It's time for YOU to break through to a smart, stable, financial future.

If you’d like to see how Grandma’s timeless wealth strategies can work in your life, schedule your free 15-minute coffee chat with us by visiting www.grandmaswealthwisdom.com/call … just like Grandma would want us to do.

Links mentioned on the show:

Schedule a call with us http://grandmaswealthwisdom.com/call

The statement from 181 CEOs about stackholder capitalism:

https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans and the analysis of if they are doing it so far: https://www.brookings.edu/research/profits-and-the-pandemic-as-shareholder-wealth-soared-workers-were-left-behind/.


Read Full Transcript

(00:05): E S G investing socially responsible investing impact investing, sustainable investing. These are such loaded terms, especially if you really are an activist at heart and you're dedicating your life to making the world a better place for all of us today, let's take a historical activist approach to using our money, to make a positive difference. Hi, I'm Amanda and welcome to the wealth wisdom financial podcast episode 109 ESG investing, saving, spending, and owing.

(00:45): Hey, I'm Brandon. And we've been a little hesitant to create this episode for you. There could be lots of different opinion and views on what is ESG investing and how to best do it. In March, the Harvard business review published an article titled the inconvenient truth about ESG investing. We think it's time. We empowered you with our wealth wisdom approach to make a positive difference in the world. Through investing, saving, spending, and being in debt. What we share today is what we've spent over a decade crafting. We like to call it ethical economics.

(01:31): Are you sick and tired of hearing the same old conventional financial advice? We feel you we're fed up with the same old truisms that fall flat. When you get into the unique opportunities and challenges of specific situations. This show is all about bringing you historic wealth wisdom about building wealth with practical insights on how to apply it to your journey. When conventional financial thinking, doesn't get you where you wanna go. You need wealth wisdom, let's master wealth building together.

(02:03): So before I go into this, Amanda, can you tell people what ESG investing actually is? What the acronym of E ESG is? Oh, it's environmental, social and governance. Um, gotcha. And it's socially responsible, environmentally responsible, sustainable, you know, all the things. Yep. So if somebody doesn't know what ESG is, that's what ESG actually means. Environmentally sustainable, all That. No social and governance. Yep.

(02:33): So here's the summary of the Harvard business reviews article from March quote investing is sustainable funds that prioritizes ESG goals is supposed to help improve the environmental in socially with sustainability of business practices. Unfortunately, close analysis suggests that it's not only making much difference to companies, actual ESG performance. It doesn't actually make it that much difference. It may actually be directing capital into poor business performers and quote, in short, the article looked at multiple research results to conclude that not only do ESG funds have lower financial returns and higher risks than regular funds, but they also didn't see marked improvement in social or environmental interest, which is what their point is anyway. Right?

(03:36): Yeah. And for those folks that have been following ESG investing for a while, this was not just about Volkswagen getting ranked number one for ESG investing by the Dow Jones sustainability index only to later get discovered as cheating on emissions test. That was way back in 2015. And this analysis was, uh, looking overall and of course was published in 2022 plenty of time in between.

(04:01): Yes. There's been a lot of scrutiny on ESG investing, not just with that Volkswagen thing, but just as importantly, this article also asked why, why is ESG investing not fulfilling on its promises of better outcomes? The only possible answer presented in the article is that companies who publicly embrace ESG do so mostly as a cover for poor business performance. Wow, well that doesn't really surprise us that at this point, we do want to offer another take on why ESG investing is not the solution for creating a more socially and environmentally responsible future.

(04:53): First let's review some basics on how social change happens. Cuz if ESG investing is trying to create social change through investing, we gotta know how does social change really happen? So I wanna take you back to my senior year of college. I saw a course listed in the course catalog and knew I had to take it. It was simply called social change. I don't remember all the things we read during the class or the papers I had to write or anything like that. But I remembered the bottom line that I took away from so much of the material that class covered. Social change really only happens from the bottom up. It starts at a grassroots level and it works its way up into our institutions. There are only a few exceptions where, you know, maybe government intervention then sways public opinion. And the ways of doing things are change, you know, starting with government intervention. But even those changes started with a minority group of individuals who went to work on a grassroots level.

(05:53): Mean. I think you've got an example for us with the right of women to vote in the passage of the 19th amendment. How is that an example of grassroot social change? Yeah. So we gotta go way back to when the us was just a bunch of colonies. Some colonies actually gave women the right to vote and it wasn't until after the us constitution was created and the power to decide who can and can vote was given to the states. And then the state started making their own state constitutions and passing their own laws that all the new states, restricted women from voting New Jersey was the last state to remove voting rights from women in 1807. What is that? 17 76, 18 0 7 30 years. Mm-hmm after the constitution was created or something like that. Um, a hundred years later though, after a delay of the civil war, there was still only a few Western states that some women worked in and got women's suffrage included in their state constitution or in the legislation passed after the state became a state.

(07:01): So how did the movement go from only 300 women and men in attendance at the 1848 Seneca falls convention in New York to 5,000 participants and 500,000 in the crowd and national media attention at the 1913 parade in Washington DC, the day before Woodrow Wilson's inauguration. That's a lot of people, even nowadays 500,000 people in 1913, that's that's a lot of travel time.

(07:32): Yeah, well, between 1948 and 1913 or 1848 and 1913, these women and men organized women's clubs and organizations and cities and states across the country from Susan B. Anthony to so gender truth to Ida B Wells, to countless women and men whose names aren't well known, it became clear that they needed to address apathy among women in general. And that would only happen on a grassroots level, but that, that they had to get more people involved, you know, more of them on their side so that they could get a universal right to vote for women as well as other rights, like to even be an attorney, ultimately more likely than not Woodrow Wilson ended up helping push through the 19th amendment by making an appeal on the Senate floor, which is an unprecedented action at that time. Mm-hmm so that he wouldn't face, or he wouldn't lose face to keep his political favor.

(08:35): He even called a special session of Congress to finally get the 19th amendment approved. None of this pressure would've been there, if it weren't for these individuals working in communities across the nation, swaying public opinion and putting pressure on politicians to do the right thing. Notably nowhere in this story that I could find were the major capitalists of the time. For example, even though many of these community groups used Carnegie hall to meet in and organize from Andrew Carnegie himself, the richest individual in 1919 did not publicly say his, um, support in favor or against with the women's right to vote. But we do know his wife, Louise did not support the women's rights movement.

(09:24): We could take this example and apply it to so many social change movements today, as much as it's easy to think that the powers that we control our lives, we have so much more power at the grassroots level than we realize sometimes. So be sure you've listened to our last episode about how to claim more power over your financial future. Today, we wanna share with you a movement that's already happening and how participating in it might just be your way to make the world a better place with your money. Brandon, where should we go next? We talked about how social change works. What's next?

(10:04): Yeah. Let's review some of the ways many activists try to put their dollars towards worthy causes yes. Or causes they feel that are worthy. Yeah. So we actually came up with five major ways. Most people try to direct their money toward positive change. Brandon, why don't you do number one? Yeah. Donating of course, giving funds to those causes that they feel worthy and doing great work. Amazing. Right. That's a great way to do it. There's something to be said for making as much money as you can so that you can be as generous as you can. But the question is do the ends justify the means,

(10:46): Which is why a lot of people turn toward number two, boycotting, not buying from companies that are causing more harm than good, the great strategy. But for this to work, there needs to be a critical mass for that boycotting to hit the company where it really hurts their bottom line and to make a big enough impact there.

(11:07): One of our favorites is fair and direct trade being, you know, former coffee shop owners, actively buying from companies that are doing good and have the accountability to show for it. This is one of my favorite strategies, but it's often the one to get cut. As soon as inflation kicks in fair and direct trade products are often more expensive. And when things get tight, it can be hard to continue to support those efforts.

(11:38): Number four is to shop local support, small local companies who often do the most good in our communities. Here. You have to be careful how you define local. Your closest big box store is not local. The owners need to live locally. It's not just the physical location close by. It's also starting to get more and more impractical because it's harder and harder for small local companies to compete with the big businesses. This is a very nuanced idea of, um, big versus small business. That's being even more complicated by supply chain issues and mergers and acquisitions taken off and so on and so forth. So in short keeps shopping small when you can and do your best here, but this might have limited effectiveness, uh, in the future.

(12:30): And in the spirit of that whole idea of reduced reuse, recycle, even buying from secondhand stores can be a very great way to make a social and environmental impact with your purchases. I mean, as poor entrepreneurs, we use this strategy as a great way to make a positive difference when we had few funds to put towards good causes and brands, cause we didn't have that much money.

(12:58): Yeah. So there you go, five ways to direct your money toward positive social change, donating boycotting, buying fair and direct trade shopping, local and buying second hand. The problem is that all of these efforts are about the money that leaves your hands. What about the money you wanna keep saving and investing for your future? That might even be more right. Bigger, right? Hopefully.

(13:24): Yeah. For many that's where local credit unions are favored over big banks and savings accounts. This ties into the shop local strategy discussed earlier. Local credit unions are often more tied to their neighborhood and participating in community based efforts than those larger national banks.

(13:45): And then ultimately ESG investing is what's trying to solve. How do you direct your investments toward positive social change through the stock market? Now, back when I got my very first company match, I think it was 20 2007 or so, um, on my, you know, retirement account with the nonprofit I was working for. I remember getting to pick where those funds went and this was back before there were ESG funds, at least any that I could find back then. My only strategy was to look at the companies included in the different fund options I was given. And then to knock out any of the funds. If I saw a company that I thought was doing more harm than good in the world. And I list of companies that if these funds invested in those companies, I wouldn't pick those funds. And I finally found one that didn't have any of those companies listed.

(14:39): It was difficult. And even though I found that company, I was still very uneasy about it. I didn't know every company that was actually in that fund. And how could I tell what their businesses are really doing? Who was I really investing in and why? And I wanted to have a diversified portfolio. I didn't wanna just pick, you know, one or two companies I believed in. So these funds, you know, especially with the 4 0 3 B, I almost had to go into mutual funds. I couldn't choose individual stocks. So I was like, I was like, well, this is the best I can do, but I hope I eventually I find something better. Now, fast forward to the past couple years, I actually found an author who put my feelings and thoughts into words. And I was like, this is what I've been feeling, but it couldn't articulate.

(15:31): Now. I'm not gonna, he like goes pages and pages in a book describing this. If you wanna check out the book, it's called sacred economics by Charles Eisenstein. And it's in the last third of the book that he finally gets to socially conscious big book. It's a big book. So let me summarize. The first thing you have to remember is that one of the basic principles of what it means to be a corporation in the United States, a corporation must put shareholder value above any other stakeholder value. That means a corporation must put profits ahead of any social, environmental or governance goals. Any company who takes on investors or issues, stock has a focus on quarterly earnings profits and stock values. They can't put the same focus on any other goals. They can't have two masters. They will always put one ahead of the other.

(16:28): So practically what you're saying is that if a company does organize for a social mission, but then does an IPO and becomes a publicly traded company. That's what a lot of people wanna actually do, right? They think so anyway, they're putting that social mission under a mission to do well for the shareholders. First, often the primacy of shareholder value means their social mission suffers.

(17:00): Yes, that's the concern here and what we often see, we're gonna have an example later of this happening, but we first have to mention, there are some who are advocating, moving from shareholder capitalism, where the company exists first and foremost to maximize shareholder value to what's being called stakeholder capitalism, where they can weigh the pros and cons of all their stakeholders. And actually in August of twenty nineteen, a hundred and eighty one CEO signed a statement, redefining the purpose of a corporation to benefit all stakeholders, not just shareholders. And we invite you to read that statement, but then also read an analysis conducted by a research group that they published in April, 2022, so two and a half years later or so from after the, uh, statement was signed and they analyzed how they're doing so far, if really these corporations said they're gonna put stakeholder value above shareholder value, how are they doing? We're gonna put both links in the show notes, warning, the contrast between what these CEOs said that their corporations would do. And what they've actually done is enough to make one vomit. And in short, like the Harvard business review summary of ESG investing, what they found is that much of this talk about stakeholder capitalism is just that talk if anything, so far, it just looks like a marketing St.

(18:35): Yeah. And I would say that they actually had a chance to prove it because we did have a little, uh, pandemic in the middle. Right. Uh, Amanda, we can, can we finally move to our wealth wisdom approach because this is getting a little depressing, uh, that we call ethical economics. Cause that's the power of what I believe in and, and why you even started our business. Uh, previous is all about ethical economic.

(19:03): Yeah. I've got one more foundational piece of knowledge before we move there. If I may, this one's gonna blow your mind though. You know, Adam Smith, the so-called father of capitalism. Yeah. I mean I've yeah, I've heard of him. I I've never met him, you know, in person or anything. Yeah. He wrote a really big book. I had to read in college called wealth of nations. OMG, if you think, uh, some of the books, uh, that I have you read are big, this one's even bigger. And I wouldn't have met him in person because he's long since gone. Right. He's from the 17 hundreds. Yeah. Did you know that he was against publicly traded companies? Um, no.

(19:40): Yeah. Back in the 17 hundreds, they would've been called joint stock companies and he did not think they should exist or at least if they were gonna exist only in the rare case, not very often because he didn't believe they were as efficient or effective at business. They were also more susceptible to corruption. Must said, corporation, not corruption. The words are too similar there. Interesting. Oh, wow. I never thought about that before. Um, but the big idea here is that a as company leaders, they would not be as good of managers over other people's money as they would over their own money. Like when the company is a partnership or a private entity and there's more liability on the managers, they often take it more seriously, do a better job.

(20:26): Yeah. If you wanna dig into how a company organized for social good and ultimately doing a lot of good, but then getting transformed by their decision to be publicly traded, just to look into the story of whole foods, I'll leave it right there, but, uh, find out who owns them too. And you might see, uh, some interesting things.

(20:49): Yeah. And you gotta look at how they were before, how they were after what led to that change all the things. And yet, even though we have this father of capitalism being against publicly traded companies, this whole system of publicly treated companies has evolved. And most Americans today see it as the only option for how they might build wealth for their own use. And for few generations, the stock market is the only place that they think of for where they can actually put money. Hence they look toward ESG investing if they wanna put that money toward doing more good than harm.

(21:28): Hmm. Right now I think at least we're ready to move towards a strategy that takes a different approach to building an economy that works for all people. Not just the 1%. I think everyone would agree that we're very unlikely to unravel the entire economic system. And I don't think we want to, right. It'd be a pretty dark day for too many. If there was a sudden move away from that publicly traded companies idea. Company's idea after all, uh, unlike in Adam Smith's time, we now have corporations who are considered too big to fail. Right. It might be even harder than passing the 19th amendment at this point. But imagine with us for a minute here, what would it look like?

(22:22): And Brandon and I are gonna channel our inner John and Yoko. Oh, well, more, more Amanda will, so, okay. I will, Amanda, here we go. Imagine there stability. It's easy. If you try a foundation below us for when it's all gone awry, imagine all the people stable and secure. Oh, that was really good. John . Yeah. I think this is powerful that, you know, just thinking about that and hearing those words, like that's what people want. Right. But in all seriousness, imagine a world or at least a nation or 70 to 80% of our money is stable with very little risk and less than 10% is being put into riskier endeavors, more account to gambling. Like imagine if it was switched a little bit, that would be amazing.

(23:31): Now some might say, well, then we'd have less innovation and some might think so, but think about the major corporations, where do they get their money for research and development? Certainly some of it comes from their profits, which they're often pressured to use. In other ways, when they're publicly traded, might there be more innovation? If a company could reinvest more of their profits into their employees than into dividends or stock buybacks to keep their share price high,

(24:05): Might we get lower rates of return though, perhaps, but we believe it's not about the rate of return. I mean, you can look at previous episodes where we talk about that. You could make an 8% annual average rate of return, but lose money. Don't believe us reach out and we'll prove it to you for now think about this question. Would you make rather make 3% guaranteed or 8%? That could be a negative 8% when you actually need it.

(24:38): If this idea of stability and security is sounding good to you, we want you to know that there's a powerful way of building financial strategies that millions and millions of Americans use, but you're not gonna hear about it from your conventional financial thinking experts. We heard about it over eight years ago and we're so thankful for how it finally gave us a way to buck the crony capitalist system. That's evolved over the last couple hundred years and put our money toward creating what we believe to be a better world.

(25:19): So here are some key features that this system has. The strategy uses a mutually owned company where the individuals and families who join together are in essence, the owners, it's kind of like a co-op grocery store where the owners are the customers, just like the grocery store has to act in the best interest of its customers and owners. These mutually owned companies have to act in the best interests of their owners. In this case, they're called policy holders

(25:54): And policy holders will, is a keyword there that makes us all realize these are insurance companies. They aren't just any insurance companies. They're mutually owned life insurance companies with a few other key features we get to in a minute. But first we have to tell a quick story about what it means to put policy holder owners first. Yeah, we got the chance to ask a C-suite executive at one of these companies, how we could make sure the company wasn't investing the general fund, our money into companies that we would consider to do more harm than good.

(26:36): Yeah. Unlike, unlike those mutual funds, I was looking at for my 4 0 3 B back in the day. I couldn't see a list of the companies that this life insurance company was investing in. Even though I was one of the owners, I could see like a, a breakdown of percentages to this type of asset and percentage of that. And I was like, how do we make sure we, we trust this? And he reminded us that the company must put the policy holder owners first and foremost, even in their investment decisions. He asked us, do you think we'd invest in companies that aren't doing good for our policy holders now and into the future?

(27:12): Yeah. What a powerful way of thinking that seems very close to what ESG investing is trying to do. Now we know there are skeptics out there, including ourselves. We ask this question too well, aren't they just buying the same stocks and contributing to the same problems that Adam Smith pointed out. Aren't they just part of the same economic system that's totally gone, gone awry. Now remember that imagining exercise we did with the 70 to 80% of the money secure and less than 10% at high risk. Well, that's what these companies, general funds look like. They are heavily regulated because they have to be able to fulfill the claims on their policies, which leads them to be very risk adverse with what they do with the general fund

(28:08): In our eyes, how this general fund is made up. And some of the other safety nets that these companies use puts them in a different category than investing. In fact, we'd call it better than investing again. We asked you, do you think the world would be a better place if most individuals and company financial portfolios had a more similar makeup? Hmm. Maybe.

(28:35): And for those of you that are still, um, in the camper, you just want a high rate of return. No matter the risk we invite you to consider. If you want any portion, maybe even 20% or 40%, whatever portion of your assets to have these other benefits and features beyond safety and stability that these companies provide that your gains are locked in and your principal's protected. So you get uninterrupted compound interest working in your favor. You can use your assets without selling them again, not interrupting your compounding. You can protect your assets from creditors and lawsuits. You can provide additional funds to your family. If you aren't there to provide for them. This is life insurance after all and so forth. We could go on and on about different benefits that people look at when they're choosing to work with one of these mutually owned companies.

(29:28): Now we're going long here today. So we'll let you know that we believe a major reason. This strategy isn't more widely known is that it does take some time and the right ally to help you make it happen. You can't just go buy this off a website in the next 15 minutes. So if you're willing to put so forth some time and effort to see if it's right for you, we're ready to be as I'm unbiased allies as possible. So go and schedule a call with us at grandma's wealth, wisdom.com/call in 15 minutes or less. We'll hear a little bit about your goals and your questions, and be able to tell you if this is something to look into more now, if not, we'll do our best to point you in the right direction. Even if that means sending you somewhere, we might not go ourselves

(30:26): For now. It's time to wrap up. Thank you so much for listening this far. If you've listened this far, we can tell you're at least curious, and we wanna give you the whole point of today's episode is really to remind you of the power of your money. No matter how many zeros are included, how many commas are in your asset portfolio, your money matters where you spend matters. And so does how you invest, save, and who you even owe money to. We gave you five ideas to transform your spending. We gave you a banking option. That's similar to shopping local with your checking and savings account. Then we shared an alternative to ESG investing that we believe in because it puts our money less at risk keeps individual Americans and their families in the priority stakeholder position and has a bunch of other benefits. It's not cuz some conspiracy theory or new fled thing. It's actually a financial tool used since before America was a nation. When we were colonies, that's our still our had existed and millions of Americans use it now kind of like women's rights to vote.

(31:41): So if we've sparked your curiosity, remember you want to find an ally who will be as unbiased as possible and show you your options. We'd consider it an honor. Any privilege to come alongside with you and help you learn more and make an empowered decision. So again, go to grandma's wealth, wisdom.com/call. And we'll just wait right here while you go ahead and schedule that.

(32:11): Maybe we'll start singing. Imagine again, put that your bug interior. Okay, pause. Go schedule that. Call grandmas wealth, wisdom.com/call. Okay. Welcome back. Now. Hit that subscribe button. So you're sure to get our next episode today, we did not get into very deeply the four letter word that creates a lot of harm in the world. Debt D E B T debt. We feel like it deserves its very own episodes. So join us next time for a deep dive into the underworld of lending. No kneecaps will be busted if you don't pay up,

(32:50): Oh, this will be a fun one, Amanda, until next time, keep building your wealth simply and sustainably. So you can break through to a smart, stable, financial future. And we hope you live long and profit. The topics presented in this podcast are for general information only, and not for the purpose of providing legal counseling or investment advice on such matters. Please consult a professional who knows your specific situation.

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