Justin Sautter is a certified private wealth advisor and founding partner at Verdant Investments. He focuses on sustainable portfolio creation and management for institutions and individual investors.
Question: When was Verdant founded and what inspired you to move in the direction of investment supporting social responsibility and environmental sustainability?
Answer: We started Verdant about a year ago. We decided to do this because there’s tremendous interest with individuals and foundations and charities to align their investments with their own values and mission statements.
I looked at the offerings out there and I thought that there’s tremendous amount of ways that people could create a bad portfolio just picking things off the shelf and not having enough information. So, I wanted to provide what people were looking for and have a quality product delivering the returns they need as well as executing the mission they might be interested in.
Q: And under the sustainability umbrella, are there specific areas of interest that you focus on?
A: We focus on as many areas as we can isolate. We are not in the business of telling people what they need to care about or what their hot button should be. We’re here to provide the menu. And if someone is most interested in animal welfare or women’s empowerment or workplace equality or the environment, then we can provide the investment opportunities that can then fulfill their portfolio needs.
Q: What’s the business case for this type of investing versus the traditional approach?
A: We start with a traditional approach. We look at all the normal metrics that we do at our parent company, Russell Capital Management to find a good investment. But then we layer non-financial material, but still material aspects into the process. So, we’re looking at the record on the environment, on social issues, and on corporate governance. And, together, those three things are called ESG — environmental, social, and corporate governance.
Q: So, the ESG standard serves as a screening tool?
A: Absolutely. That is the standard. Those three protocols are the standards for scoring the companies.
Q: Can you give us some examples of industries or types of businesses that you would deem appropriate for this kind of investment?
A: Well, it’s interesting because you look at the ESG in totally different ways for different companies. So, if we’re looking at a company involved in energy production, the “E” — the environment, is going to be very important. Now, if they treat their employees poorly or have a dangerous product, obviously we’re going to look at that, as well. If they’re not being truthful in their reporting practices, that’s part of the corporate governance, of course that’s important. But, for that type of company, we would focus heavily on the environmental record.
If we look at a bank, for instance, we would want to make sure they are treating their employees correctly and that they have best-in-class standards for how they deal with customers and deposits, etc. So, that would be more in line with the social case.
Q: Impact investing is interesting, I assume this is the use of investment to influence social impact. Do you engage in that?
A: Absolutely. Everything that we do has an impact and while many people refer to the ESG, there’s also the SRI and that’s socially responsible impact investing.
So, obviously if you want to have dramatic impact and you don’t need your money down the road, then you can just take it and, if you think ‘we need more affordable housing,’ we’ll give your money away and create more affordable housing. That’s impact.
But, these portfolios are obviously made for people who do want their money down the road but want to do good “while it’s doing well.” So, the way that we have impact is through the fund partners that we use and the way they lobby different companies to change what they’re doing.
So, for instance, there’s been tremendous impact with Malaysian palm oil producers. There was a moratorium on new plants, there were sustainability initiatives put in place and that was because shareholders lobbied the companies and said you need to change because the deforestation issue over there was enormous. And that’s tremendous impact.
That impacted Amazon. Amazon, prior to 2011, didn’t have a sustainability department. They weren’t looking at their footprint with both energy and that could be within their facilities, but also with all the shipping that they do, water usage and things like that, and now they’re very robust in that and that’s because they were lobbied by our partners at these funds.
Q: And, what is your screening process for managers and fund providers?
A: It all goes back to the investment viability. So first, we use the traditional investment metrics: Are they quality managers? Do they have good returns? Are they sticking to their benchmark?
I wouldn’t want an investment that was supposed to look like the S&P 500 that outpaced it by you know 10 percent each year because they are not doing what they’re supposed to be doing. Likewise, you wouldn’t want it if it was 10 percent below. So, we have to make sure the managers have long track records, good tenure in the business, and that they’re actually doing the ESG.
Q: Are there areas of investments that are avoided by your strategy that more or less you wouldn’t touch with a 10-foot pole?
A: Well, this type of investing began with exclusionary investing when you would say, okay, no guns, no, weapons, no alcohol, no tobacco, no pornography. That was kind of the beginnings of this. But now, there is also inclusive investing where you’re investing in companies that have good financial metrics, but also are making a positive impact or spurring change in certain areas.
And then, there’s best-in-class. That’s when you pick a company that may be a leader in its space. Maybe you don’t absolutely love the space, but it’s a leader in the space and it’s making good strides in ESG.
We try to look at all of that and not limit ourselves too much, but you would be hard-pressed to find a company manufacturing cigarettes, firearms, pornography, gambling, alcohol in the portfolio. They’re just not going to turn up very often.
Q: How do you determine if these strategies are having a measurable or a positive impact?
A: Happily, that’s a fairly easy part. Our fund partners put out tremendous amounts of research. Weekly, monthly, quarterly we’re constantly getting reports and also engaging with portfolio managers to see what they’re doing and it’s right there in black and white.
Q: And, where do you find investors who are interested in putting money into sustainability and into these issues?
A: It could be anyone, but when you look on the institutional side and you talk about a foundation or a charity that has a certain mission, there are a lot of them out there. It’s amazing that someone with an environmental mission wouldn’t be investing with ESG and with the socially responsible investments. Likewise, a hospital endowment, it would be amazing to think that they might own something that would be harming people. And incidentally, we also have faith-based layers — ways of investing with both the Catholic doctrine as well as Judeo-Christian traditions. So, for religious institutions it also makes a tremendous amount of sense.
As far as the individual goes, the research tells us that it’s primarily women and it’s younger investors, millennial investors that have the most interest. However, I find that most people are interested in the subject.
Tom Martin’s Q and A appears every two weeks in the Herald-Leader. This is an edited version of the interview. To listen to the full interview, find the podcast on Kentucky.com. A feature based on the interview also will air on WEKU-FM 88.9FM on Mondays at 7:35 a.m. during Morning Edition and at 5:45 p.m. during All Things Considered.
This story was originally published September 20, 2018 9:55 AM.