Social Impact Investing – Alignment for Successful Long-Term Investing (Audio)

Interviewer: Marc Doss, Regional Chief Investment Officer, Wells Fargo Private Bank
Interviewee: Kimberly Ryan, Portfolio Manager, Wells Fargo Social Impact Investing

Before we begin, please listen to the following disclosures: Investment and Insurance Products. Not FDIC Insured. No Bank Guarantee. May Lose Value.

Marc: Hello, I’m Marc Doss, Regional Chief Investment Officer for Wells Fargo Private Bank. Joining me is Kimberly Ryan, Portfolio Manager for Wells Fargo Social Impact Investing.

Kimberly, there’s a growing trend toward responsible investing as investors have a desire to make an impact with their investments. And at Wells Fargo, we call this Social Impact Investing. Why do think this strategy is gaining more attention with investors?

Kimberly: Responsible investing has been around for a long time. Traditionally, those that were interested had specific values that they were looking to see reflected in their investment portfolios. Whether that was environmental, religious, or maybe even animal warfare concern. I think the growth that we’ve seen over the last 10 years or so have been driven by recognition that good investments are more than just a set of numbers on a financial statement. And, I believe that the abuses of the financial crisis helped highlight this point as we all came to realize how a misalignment of interest between executives and shareholders can lead to pretty dire consequences, so people really understand that corporate governance, as one example, is really important as an investment.

Marc: Very good points, Kimberly. So a key part of your investment process involves something that many investors may not be too familiar with—Environmental, Social and Governance analysis or ESG. Can you talk about how the team uses this process to identify “good” investments?

Kimberly: Sure. What we’re trying to do is look at all the potential risks and opportunities that a company has. And that includes analyzing the financials of the company and developing a view on the company’s core competitive advantage. ESG analysis is where we’re looking at additional criteria that we believe will impact the value of a company.

One of those items is corporate governance. We believe a good investment is one that has the proper checks and balances at the board level and a fully engaged board to make sure executives are thinking about the health of the company over the long term. The other factors that we look at are really a function of the industry that the company operates in.

Mark: So, Kimberly, can you give us a couple of examples?

Kim: Sure. If we’re looking at a consumer goods company, we would focus on product quality and safety, management of that company’s supply chain and its strategy around waste, more specifically packaging. If we’re looking at an energy company, we’re going to inspect that company’s emission profile. We’re going to look at its efforts to reduce the environmental impacts of its business. And we might also look at things like worker’s safety. We think this provides a more useful picture of a company’s future and its ability to generate sustainable cash flow which we care about as investors and we use this process across all the strategies that we manage, including public equity, fixed income, and real estate.

Mark: That sounds like the ESG process is a very good one. Can you talk a bit about your approach for investors to take a long term view with their investing? Why’s this so important, Kimberly?

Kimberly: The average stock holding period for an investor is 1.6 years. So when you think about in terms of an investor’s lifetime which is around 80 years. There seems to be a somewhat of an inconsistency there. Whether that’s trying to time the market or simply trading too much. This creates risks to an investor and their ability to meet their financial goals over time. Because social impact investing focuses on items that cannot be measured and evaluated over just one or two quarters, the process encourages investors to think longer term. Which we think can help them avoid unnecessary costs and increase their chances of financial success.

Marc: Great points, Kimberly. The ability to combine your personal values with an investment approach that focuses on a longer time horizon would seem to be a compelling opportunity for some investors.

Thank you for joining us in this discussion, Kimberly. For more information, speak with your investment professional who can help you assess whether the types of investments discussed are appropriate for your specific circumstances.