Understanding how Ethic evaluates direct and indirect impacts.
by Kellen Parker
Key Takeaways
- Not all company involvement is the same—we consider degrees of connection, from direct participation to indirect support, when assessing company behavior.
- Our Sustainability Model is flexible, allowing clients to decide how strictly to apply screens based on their own priorities, risk tolerance, and portfolio goals.
- This approach works across a wide range of values, helping clients target specific behaviors while keeping portfolios intuitive and aligned.
Why Scales of Involvement Matter
When clients feel strongly about an issue, they may want to ensure that companies connected to that issue are excluded from their portfolio. But in practice, companies can be involved in many different ways—not all of them equally direct. Understanding these “scales of involvement” is key to creating a portfolio that truly reflects a client’s intent.
An Example: Fossil Fuels
Take fossil fuel involvement as an example. At the most direct level, companies may extract, refine, or transport fossil fuels. Others might provide services or equipment to those companies. Further out, some may use fossil fuels in manufacturing, or finance projects tied to the industry. While some clients want to screen out only the most direct actors, others prefer to also flag indirect participants—accepting that this may lead to greater deviation from their benchmark index.
Tailoring Portfolios to Client Priorities
Ethic’s Sustainability Model prioritizes more direct forms of involvement but can apply screens more or less strictly depending on client preferences. A client who wants to stay closer to the benchmark might focus only on the most exposed companies, while a client with more tolerance for tracking error might also target indirect participants. The same approach applies whether the focus is on fossil fuels, labor practices, environmental issues, or any other cause.
Our goal is to help clients identify and calibrate the level of involvement they’re comfortable with—so their portfolio is both values-aligned and intuitive. And our Sustainability team is always ready to provide guidance, examples, and data to support those decisions.
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Disclosures:
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.