Historically, ESG—environmental, social and governance—strategies have focused on excluding shares of firms that don’t meet their standards, such as companies involved in tobacco, firearms or alcohol. Yet, an exclusionary strategy doesn’t always mean portfolios contain the best ESG options. To counter this issue, CLS Investments developed an ESG strategy that prioritizes the selection of strong ESG investments rather than focusing on avoiding non-ESG ones.
“What we’re saying is let’s go and look for the good things—the companies that are environmentally conscious, socially responsible and exhibit sound governance,” says Ryan Beach, CEO of CLS Investments, an investment management company based in Omaha, Neb. “We believe that these high quality companies typically provide increased stability and have the potential to outperform over time.”
CLS screens investments by examining a number of different factors such as fossil footprint, workplace equality and transparency. “There’s a correlation between those activities and higher returns,” Beach says.
The firm offers two different versions of its ESG strategy: CLS’s Focused ESG Strategy operates as a single investment model that can be added to a diversified portfolio. CLS’s Risk-Budgeted ESG Strategy builds risk-adjusted portfolios from actively managed mutual funds and ETFs.
The CLS teams backs up their ESG strategies with strong communication with advisors. For example, every quarter the company sends advisors video progress statements on their ESG portfolios.
This ethos of strong communication is reflected in another of the firm’s initiatives, the Advisor IQ series, which provides online educational materials and tools to help advisors interact with their clients. “The programs seek to create a thorough line between good asset and practice management, while providing practical tools advisors can use in their everyday practice,” says Beach.
“Combining the asset management experience with great practice management is what really sets up advisors for long-term success,” he says.