Data and Storytelling: How sustainability data can improve the client experience
Tuesday, July 30, 2024
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July 2024
Data and Storytelling: How sustainability data can improve the client experience
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The values-aligned investing conversation can be rife with challenges. Here we break down how our approach to sustainability data can make storytelling easier for advisors, investment teams, and investors. 

by Kellen Parker and Claire Quigley

Crafting  a truly personalized, values-aligned, and sustainable investment offering would be impossible without a rigorous approach to the data that informs those portfolios. At Ethic, we have found that sustainability data can not only be used as a tool for building portfolios but can also be a key asset in offering an excellent client experience. Director of Sustainability Data Kellen Parker (KP) and Relationship Manager Claire Quigley (CQ) share their unique perspectives on how greater transparency, personalized storytelling, and rigorous data quality can foster greater trust and engagement with our clients.

Some key takeaways from their conversation: 

  • Offer greater transparency: Investors want to be secure in their knowledge that their investments truly line up with their values. Finding out that they own shares in a company that is antithetical to those values can be jarring, but it is also an important step towards making improvements. Our data-driven Healthcheck tool allows us to analyze almost any common equity or corporate bond portfolio to see how it aligns with the client’s values.
  • Unlock more personalization: Every client has their unique set of values and risk tolerances — there’s no-one-size-fits-all solution. But with a high volume of good data and the right data structure, it’s possible to match financial goals with sustainability goals. 
  • Build trust through communication and diligence: Few things are more important to a strong client experience than trust. Many clients are not experts in data methodologies, but providing clear communication as to why certain companies are or are not screened from their portfolio can be central to retention. The world of sustainability data can be imperfect and complex; therefore the strongest approach is less about finding the perfect dataset and more about finding and translating the right practices.

CQ: I’ve been managing client relationships at Ethic for over 4 years now. Today, I work exclusively with our institutional clients, who are typically foundations, endowments, and multi-generational families. Something that consistently lights up our clients is hearing about our approach to sustainability data and how it enables our work. I love sharing these stories. I’ve got my colleague Kellen here, who manages our sustainability model at Ethic, to talk about how data helps build trust and tell better stories.

KP: Yeah, we definitely have seen storytelling as a great way to make complex topics more intuitive. You mentioned Ethic’s sustainability model, which, for those not familiar, is our internal system for evaluating companies on their sustainability credentials. The model is data-driven because it’s important for us to quantitatively show why we think a company is better or worse for a particular investor focus. We’ve spent 9 years crafting 100+ iterations of our model, refining our process to make the data structure as clean as possible to give clients transparency into what is being measured. Having these defined, data-driven connections across a wide range of issues really lends itself to being able to tell an evidence-based story of what’s in a portfolio.

Offering greater transparency

CQ: You mentioned transparency, which is huge for our clients. One of the things that showcases the strength of our data is our Healthcheck tool. This tool allows us to analyze almost any common equity or corporate bond portfolio to see how it aligns with the client’s values. For instance, I have a foundation client who is focused on Health & Wellness, and it was really surprising to them to see they still had tobacco exposure as this was a key focus area for them.

KP: Yeah, we see this a lot on the sustainability team. There is this idea of what it means to be invested in something like tobacco. Typically, it’s assumed that all you need to do is remove things like tobacco growers or manufacturers of cigarettes and other tobacco products in order to remove exposure to that industry. But if you look a little deeper, you start to get all sorts of interesting connections. There are unexpected retailers of tobacco, or companies that manufacture things like cigarette filters, etc.

CQ: Oh noooo. Kinda a downer sometimes, eh? 

KP: I dunno, I think understanding how these companies work is the first step to making improvements. And to get back to the stories, we hear  that the surprising ways companies are flagged really sticks with our clients a lot. Stories like a client realizing that the family-friendly cruise ship operator they’re invested in sells cigarettes in their general stores and is flagged in our model.

CQ: Yeah. I’d say even if the client doesn’t initially want to get that detailed on their portfolio holdings, they appreciate our level of diligence and that we have the flexibility to tailor how strict their strategy is based on their viewpoint.

Crafting more personalized portfolios 

KP: This to me is one of the most difficult things to get right. The model and data structure need to be fairly intuitive across a wide range of client preferences while also handling very specific views. Y’know, the client who wants to not own nuclear weapons but is okay with other controversial weapons. Or the client who doesn’t want to exclude fossil gas utilities but also wants to own renewable energy assets.

CQ: Related to that, we recently had a good example come up with an endowment that was working on fossil fuel divestment. They were already invested in a number of ESG ETFs and were under the impression that their investments were fully aligned with their values.

KP: Yeah having good data and the right data structure really helps. If you want to invest in a climate ETF, for example, you should definitely look through how they define things like fossil fuel involvement because it is not as simple as it seems. We have the ability to view a really wide lens on how companies are involved — fossil fuel financing, refining, energy usage, retailing, etc.

CQ: What do you think is most compelling for clients here?

KP: Well, it’s great to be able to be this specific but I think the most powerful thing is in how we are able to match financial and sustainability objectives.

CQ: Right, so if a client has a low risk tolerance, they may only remove major oil producers like Exxon?

KP: Exactly. If you have no-risk tolerance constraints, you can probably find some issues with most companies in any given benchmark. It’s our data and model that helps clients prioritize based on their values, risk tolerance, etc. And to make informed decisions, clients have to be able to get the context. So, in this simplified example, for a client with a climate change focus and a lower risk tolerance, the model would automatically default to screening for the most egregious and direct fossil fuel involvement (the companies responsible for massive CO2 emissions that have made no attempts to transition to cleaner energy sources). A client with a higher risk tolerance, however, may have stricter standards and also flag companies that are doing things like fossil fuel financing, whose business is heavily dependent on petrochemicals, or are generally exacerbating the climate crisis in less obvious ways.

Vetting our data

CQ: So how do we know the data is trustworthy?

KP: Sustainability is complex, and what we think is most important is to make sure that the data is appropriate for what you are trying to do. A lot of sustainability data is not trustworthy because it has not been thoroughly vetted or it is not transparent enough. So we do a lot of quality control on the data values, using our internal tools to quickly flag potential data issues and reduce our dependence on any one source. We also work closely with our partners to serve as an additional layer of quality control on the data collection and methodologies upstream. 

CQ: So why should clients care about the quality of their sustainability data? Why does it matter that those who are not experts still understand it? Does it impact client experience?

KP: We have found trust is critical for our clients. People’s values are very important to them, and they are becoming more and more interested in where their money is. We don’t expect our clients to be experts in things like methodologies for tracking hazardous waste but we want to build trust in our approach and highlight why it matters. It’s hard to maintain trust with a client if a top holding was underestimating their injury rate by 100x and is now being flagged for worker safety. They are going to have questions about what has changed. Similarly, if your “biodiversity” portfolio has a top mining company because they are not reporting most of their hazardous waste, that could lose you the business. Accuracy issues, coverage gaps, bad QA — all these things derail that trust.

CQ: Is it fair to say that people’s sustainability objectives start with good data? Whether they are looking to understand the issue, balance their objectives, or have additional impact through things like engagement?

KP: You’re probably not shocked that I agree with you there. We have seen this be a really good starting point for people to ask questions, begin to take action in their daily lives, and engage with some other Ethic offerings, like reporting.

CQ: Agreed, that’s a whole other session though!

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Sources and footnotes

Important Disclosures 

Information provided herein is for informational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Information contained herein was carefully compiled from third-party sources that Ethic Inc. believes to be reliable, but Ethic Inc. does not have control over any third-party content and cannot guarantee the accuracy of that information. Hyperlinks to this third-party informational content and websites are provided solely for reader convenience. By clicking hyperlinks to third-party content, you will be leaving the Ethic Inc. controlled environment.

Ethic Inc. is a Registered Investment Adviser located in New York, NY. Registration of an investment adviser does not imply any level of skill or training. Information pertaining to Ethic Inc’s registration or to obtain a copy of Ethic Inc.’s current written disclosure statement discussing Ethic Inc.’s business operations, services and fees is available on the SEC’s Investment Adviser Public Information website – www.adviserinfo.sec.gov or from Ethic Inc. upon written request at support@ethicinvesting.com. Information provided herein is for informational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Any subsequent, direct communication by Ethic Inc. with a prospective client shall be conducted by a representative of Ethic Inc. that is either registered or qualifies for an exemption or exclusion from registration in the state where a prospective client resides. Information contained herein may be carefully compiled from third-party sources that Ethic Inc. believes to be reliable, but Ethic Inc. cannot guarantee the accuracy of any third-party information.

Ethic Inc. does not render any legal, accounting, or tax advice. Ethic Inc. recommends all investors seek the services of competent professionals in any of the aforementioned areas. Ethic Inc. cannot provide any assurances that any investment strategies, simulations, etc. will perform as described in our materials. ALL INVESTMENTS INVOLVE RISK, ARE NOT GUARANTEED, AND MAY LOSE VALUE. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY.

Contributors

Kellen Parker is Ethic's Director of Sustainability Data & Insights. He has BAs in Economics and Philosophy from the University of Virginia and is a CFA Charterholder. He has been in NYC since 2010 and is passionate about waste reduction and transportation advocacy. Kellen has experience at environmental think tanks as well as risk and asset management firms.

Claire Quigley is a Relationship Manager, and has worked with Ethic’s clients for nearly 5 years. She currently currently covers institutional clients, working with families, foundations, endowments, etc., to build mission-aligned investment portfolios. Based in Brooklyn, NY, Claire graduated from Trinity College with B.A.s in English & Urban Studies.

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