I’ve struggled recently in making the transition from the humanitarian crisis we’re seeing in Europe to communicating helpful takeaways for how it’s affecting the stock market. Don’t get me wrong, there is no shortage of charts and graphs showing how the market has responded to similar historical events. At the moment though, simple data feels detached from the realities of war, and an apathetic approach to the current turmoil.

Some of you may struggle with this tension as well. Does it feel strange and selfish to look at human suffering and simultaneously feel the urge to peek at the effect it’s having on your net worth?

Some Perspective

First, let’s agree that it is totally reasonable and natural to observe the unrest in Europe and wonder what it means for us – investments included. Significant problems elsewhere don’t negate the validity of individual concerns. Our financial goals and investing journeys are always intertwined with conflict; whether personal, local or global.

Second, realizing that this is a natural human response, is there a way to ease the tension and bring seemingly conflicting concerns into closer alignment? One possible answer may be to invest in ways that mirror our values. This process is often referred to as values-based investing.

What is Values-based Investing?

Each morning I read the same phrase printed on the side of my coffee mug: “Investing that makes the world rejoice.” This is the motto of a values-based investing company with the purpose of creating investment and social capital through the application of values when choosing companies for their funds.

Evenkiehl offers values-based investing as an option because we believe our clients shouldn’t have to exchange their values for investment growth. After all, if investors apply their values to every other aspect of life, why should they approach investing differently? 

Values-based investing varies slightly across different fund companies, but most follow a similar three step process in their application: Avoid, Embrace and Engage.

Avoid

Sometimes referred to as a “negative” screening process, values-based investing fund managers start by specifically avoiding companies that don’t align with their determined values. 

Some of you may remember news stories several years ago of Aldi Sugunda, an Indonesian chain smoker. What made him particularly newsworthy was that he happened to be 2 years old. Horrifying video clips of this child smoker underscore the reality of child tobacco addiction in underprivileged countries.

Values-based investing responds to this problem by not investing in tobacco companies or other businesses profiting from similar addictive or destructive behaviors.

Embrace

Once companies are ruled out, values-based investing looks to specifically invest in companies that actively working to advance human dignity and respect. This is often referred to as a “positive” screening process. Examples include companies that make energy more accessible and affordable, or work to advance the application and innovation of health and safety.

Engage

Winston Churchill once said, “We shape our buildings, thereafter, they shape us.” Churchill recognized the powerful role businesses possess in shaping society’s interaction and consumption. Look no further than Apple’s eagerly anticipated new product events for evidence of this.

Values investors, on the other hand, seek to have a hand in that shaping. In the “Engage” phase, fund managers intentionally engage with companies (on the investor’s behalf)  to advocate for continued positive change.

Conclusion

There are certainly valid objections to values-based investing. Perhaps the biggest is the reality of narrowing a broad investment market by excluding certain companies. 

Fortunately, values-based investing has grown significantly over the past decade. This growth has created the ability to construct high quality, diversified and risk appropriate portfolios. Still, it’s important to realize the possibility of increased risk and muted returns by not participating in certain segments of the market. 

“How does this help in a situation like the Ukraine war,” you may ask? Values-based investing’s approach is to actively combat the greed, self advancement and lack of humanitarian concern prevalent in these conflicts. It is an attempt to create investments that do indeed make the world rejoice.

For additional reading on values-based investing, click here. 

Jonathan is the founder of Evenkiehl, LLC, an independent, fee-only Registered Investment Advisor located in Lancaster, PA serving clients locally and across the US.