Advisor Resource Center

Your comprehensive guide to all things ESG

ESG investing is on the rise. OpenInvest's Advisor Resource Center helps you and your clients better understand the ever-changing space so you can achieve impact where it matters most.

Get familiar with ESG

What is ESG investing?

ESG investing is a framework for evaluating a portfolio beyond the scope of financial return. It generally considers three aspects of an investment: Environmental impact, social impact, and corporate governance (ESG). At OpenInvest, we use the terms ESG investing and "values-based investing" interchangeably. Our technology allows your client to invest in the particular Causes that matter most to them – such as Reducing Greenhouse Gas Emissions, Investing in Racial Justice, Supporting Women Leaders, Fighting Deforestation, and many more. Each OpenInvest Cause is powered by industry-leading data and adheres to a strict methodology to keep your clients' investments aligned with their values, all without sacrificing financial goals.

How does ESG investing work at OpenInvest?

At OpenInvest, ESG investing is made possible by our Dynamic Custom Indexing (DCI) technology. DCI bypasses funds and instead purchases the underlying stocks directly, automatically overweighting or divesting from particular stocks depending on your client’s selected Causes.
Whenever you adjust the portfolio, OpenInvest’s algorithms automatically  rebalance  it to maintain tracking of the benchmark. For instance, if the Invest in Racial Justice Cause is selected, our technology overweights companies with a positive impact, re-weights neutral companies, and removes companies that do not align with the Cause. The end result is a way for your clients to invest in their values without sacrificing financial goals.

Is ESG investing just a trend?

ESG investing is one of the fastest growing investment sectors in the world. A Deloitte Insights study from February 2020 found that ESG-mandated assets have more than tripled since 2015 and may grow three times as fast as non-ESG mandated assets in the United States, constituting half of all AUM by 2025. Over the next three years, Deloitte estimates that 200 new funds will launch, more than doubling the activity from the previous three years. Alongside growing demand, Morningstar found that ESG funds may have lower risk and stronger performance compared to traditional index funds. In the first quarter of 2020, Morningstar found that out of the 26 ESG index funds it tracks, 24 outperformed their closest conventional counterparts. The study suggests that ESG funds tend to be biased toward higher quality companies with a stronger balance sheet, companies that are run better, and operate more efficiently.. Learn more ›
Socially Responsible Investing (SRI)
Socially Responsible Investing (SRI) is a sustainable investing strategy similar to ESG but generally focuses on exclusion only, while ESG investing involves both inclusionary and exclusionary measures. The particular methodology depends on the institution, and often the terms are used interchangeably.
Index Fund
An index fund is a portfolio of stocks and bonds designed to mimic the risk and return of a particular market index, for instance the S&P 500. Though convenient and stable, index funds are rigid and unable to be customized, often containing companies that do not align with the investor’s values.
Separately Managed Account (SMA)
An SMA is a highly-customizable portfolio constructed of individual securities and powered by direct indexing technology. With SMAs, investors benefit from direct ownership of stocks and can participate in proxy voting.
Direct Indexing
Direct indexing is the direct purchasing of underlying stocks in an index, rather than through a fund. Learn more here.
Dynamic Custom Indexing
Dynamic Custom Indexing (DCI) is OpenInvest’s proprietary technology that powers our ESG portfolios. DCI functions like direct indexing and replicates the market by purchasing the underlying stocks directly. Our algorithms then remove companies based on your client’s selected Causes, and dynamically rebalance the portfolio to maintain the benchmark. The end result is a way for your clients to invest in their values without sacrificing financial goals. Learn more here.
Divestment is a key part of ESG investing. OpenInvest’s technology automatically divests your clients’ portfolios from companies that don't align with their selected Causes. Outside of each Cause, advisors have the freedom to remove any security from the portfolio that their client desires.
ESG Scoring Methodology
Each OpenInvest Cause is built from a set of indicators that result in an overall positive, neutral, or negative score for the portfolio. These indicators are constantly updated and backed by data from a variety of sources, ranging from market data aggregators such as Refinitiv, Asset4, and QADirect, to highly specific academic or industry research such as UMass Political Economy Research Institute, or the Global Canopy Initiative’s Forest 500 ratings.. More ›
ESG Scoring Methodology cont'd
To give an example, the indicators for Invest in Women Leaders include the percentage of women on the company’s board and executive team and the percentage of female managers. OpenInvest scores companies with significantly below average metrics as negative, around average as neutral, and significantly above average as positive. The specific methodology varies across Causes and is available through Impact Reports.
Tracking Error (TE)
Tracking error (TE) is the difference in returns between a portfolio and its benchmark. Tracking error is commonly used to determine how well a portfolio is performing, and is calculated as the standard deviation of the difference in returns of the portfolio and the benchmark over time.
Impact Reporting
Impact reporting is an automated tool advisors can use to generate engaging reports for clients on an ongoing basis. For each Cause, the report demonstrates the proportion of positively- and negatively-scored holdings for the portfolio and converts performance into relatable, tangible insights – e.g. trees planted or miles avoided. Impact reporting is included with every ESG solution OpenInvest offers.
Tax-Loss Harvesting (TLH)
Tax-loss harvesting (TLH) is a method of reducing near-term tax burden by selling assets that have lost value in the past year. These losses can be used to offset capital gains in other investments, or to reduce taxable income. Taxes need to be paid eventually, but in the meantime the deferred money can be invested to generate returns. Unlike traditional funds, Openinvest offers automated tax-loss harvesting at the individual security level. Learn more here.

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Engage your clients

How to approach the ESG conversation

Whether you're currently offering ESG or searching for the right solution, you may feel unsure about how to approach clients about investing with their values. Consider the framework below:
Introduce. In your client communications, consider including a simple explainer on ESG investing to pique clients’ interests.
Inform. Help debunk the most common ESG myth: That sustainable investing means lower returns. Instead, help spread the word that ESG investing, like other forms of sustainable investing, is good for the world and your clients' portfolios. Consider sharing articles on the efficacy of ESG on your social media, client emails, or company website.
Engage. For clients who express interest, follow up with a list of Causes they can invest in to help them discover the possibilities for their portfolio. With one of the most advanced and robust ESG grading methodologies in the industry, OpenInvest helps your clients feel confident about where their money is going.

How to talk to clients about OpenInvest

What is OpenInvest?
OpenInvest, a J.P. Morgan company, is a financial services company offering technology that makes it easy to invest in your values without sacrificing financial goals. Our solution is powered by direct indexing, ESG data, and tangible impact reporting.
Direct indexing: Our ESG portfolios are powered by our proprietary direct indexing technology which replicates market indices by purchasing the underlying stocks directly. OpenInvest’s algorithms then add or remove companies to meet your client’s values and automatically rebalance the portfolio to continue tracking the benchmark.

ESG data: Data is at the core of everything we do. Each Cause follows a strict methodology backed by a variety of sources including market indicators, data aggregators, and industry research. We’re constantly updating our data and share these sources in every client report.

Tangible impact: OpenInvest gives your clients a detailed view into their portfolios, converting their dollars into engaging metrics such as trees planted, miles avoided, or percentage of women in leadership. We believe detailed reporting is critical to the ESG experience.

Tangible Impact Reporting

Clients want a comprehensive, simple way to see how their investments are performing, but creating reports on an ongoing basis can be tedious and time-consuming.

OpenInvest simplifies the process and takes it a step further by converting portfolio performance into tangible metrics that demonstrate real-world impact – like trees saved or miles avoided. No matter which OpenInvest solution you choose, your clients will benefit from these proprietary reports, generated with just the click of a button.
Request a sample report

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Prepare your business

What does transitioning client assets look like at OpenInvest?

Meet and greet. First you’ll meet your OpenInvest Account Team. They will be available to answer any questions you have along the way and streamline the transition for you.

Tech walk-through. Your Account Manager will give you a personalized walk-through ofOptimus, our advisor web portal, to familiarize yourself with the platform and OpenInvest’s technology.

Client introduction. Meet with your clients and fill out the OpenInvest Client Questionnaire, the first step in launching their personalized portfolios.

Onboarding. Fill out the necessary custodian paperwork and either open or transfer the account to OpenInvest. Once we receive the necessary information, the client’s account is traded in according to their questionnaire within 2 business days.

Strategize and launch. Partner with your Account Manager to create a plan tailored to your specific needs. Together you’ll identify your primary business goals and develop a strategy to maximize the OpenInvest platform. As your needs evolve, OpenInvest will be there to support you.

Tax-loss harvesting at OpenInvest

At OpenInvest, tax-loss harvesting is made possible through our Dynamic Custom Indexing technology. Direct indexing provides a greater opportunity for tax-loss harvesting due to the ability to hold stocks that have advanced and sell stocks that have declined. Tax-loss harvesting at OpenInvest happens in two ways:
  1. Ordinary rebalancing. We restrict sales of stock positions that will generate capital gain, and thus, tend to sell positions that are at a loss.
  2. Proactive tax-loss harvesting. With our proprietary technology, we are able to set triggers to sell many positions that are at a loss. This may happen at the end of the year, throughout the year, and in response to market conditions. For example, in 2020, tax-loss harvesting during pandemic-related decline added significant tax value to many of our accounts. We proactively seek beneficial loss opportunities on behalf of your clients.

Tax transition tools at OpenInvest

To transition your assets in a tax-efficient manner, we offer the following:
  1. OpenInvest tax transition tool. Our specialized technology allows us to transition client assets to an OpenInvest portfolio in a tax-efficient way, continually seeking prime opportunities on behalf of your clients.
  2. Options and opportunities. Given a client’s specific portfolio and tax basis information, we can provide a menu of options best suited to their needs including trading off portfolio tracking error, capital gains, and ESG considerations. This selection allows the client to choose what combination of capital gain and tracking error best suits their financial needs, risk tolerance, and values.
  3. Capital gains budgeting. Our technology allows us to work within a capital gains budget for a given year. For example, we can create a portfolio with minimum tracking error given that a client wants to recognize no more than a certain amount in capital gains in a year.
  4. Transition planning. If your client prefers to transition an account over multiple years, we can create an illustrative “glide path” for fully transitioning an account to an OpenInvest portfolio with the client’s preferred benchmark and Causes over time.