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What is values-based investing?

Published on

January 24, 2023

A quick guide to values-based investing, its history, and where we see the industry heading

Sustainable investing’s transition from niche investment strategy to mainstream prevalence has positioned it as the future of the financial industry. This rising interest in sustainable investing opens the door for values-based investing, an investment approach that reflects one’s personal values by avoiding or increasing exposure to specific companies, sectors, or business practices. Here, we examine the power of sustainable investing to help drive long-term growth, and the potential for values-based investing to provide customized and principles-aligned portfolios.

What is sustainable investing? 

To understand values-based investing, we first need to place it within the context of sustainable investing. Sustainable investing is an umbrella term used to describe investment approaches that incorporate financial as well as social and environmental objectives. 

Within that umbrella, there are several approaches to sustainable investing, including:

  • Values-based investing: An investment approach that reflects one’s values by avoiding or increasing exposure to specific companies, sectors, or business practices. 
  • ESG: An investment approach where consideration of environmental, social, and governance (ESG) factors is a key component of the implementation and portfolio construction investment decisions.
  • Thematic investing: Invests in companies and funds that target specific themes or issues, such as water, clean energy, and gender diversity. 
  • Impact investing: Invests in companies, organizations, and funds with the intention of generating positive, measurable social and/or environmental outcomes alongside financial return.


What is values-based investing?

Values-based investing can offer investors a high degree of both customization and personalization. Thanks to recent technological innovations, it’s possible to actively pick and choose investments according to your values without necessarily sacrificing financial returns. 

This gives investors the best of both worlds: a values-aligned portfolio built around the causes they care about while prioritizing their financial goals. 

Historically, values-based investing limited exposure to so-called “sin stocks,” such as alcohol, tobacco, and firearms. However, today’s investors can take a more granular approach and positively screen for companies that are addressing a more comprehensive list of values. 

Here’s what that looks like in practice:

  • Personal values front and center: At the beginning of the portfolio selection process, investors will be able to focus on certain values that matter most to them.
  • Specific causes and companies: Values-based investing allows investors to potentially be very granular and targeted in their cause selection, tilting portfolios toward specific topics such as investing in sustainable agriculture or reducing carbon emissions. Investors will be able to identify individual securities that are aligned—or not aligned—with specific values. 
  • Personalized reporting: Values-based investing gives investors insight into their portfolio’s sustainability metrics through personalized and engaging reporting, data flows, portfolio analytics, and more.
  • Dynamism: With values-based investing, investors can see some key environmental and social characteristics of individual holdings, and then invest or divest according to their values or company behavior. 

What’s the benefit of values-based investing?

Values-based investing is a personally fulfilling opportunity. Selecting investments for a portfolio that align with an individual’s values by using a new set of criteria can offer a way to pursue returns while establishing a deeper connection with those investment decisions. For example, with personalized reporting, you can receive updates about the environmental and social metrics of your portfolio. This provides additional information to help you make changes to your portfolio that better align with your ideals. 

We believe that sustainable investing has become more than just a trend—it’s changing the way investors can view their portfolio. Material environmental and social issues such as diversity, energy efficiency, business ethics, and carbon emissions are likely to get more attention in the coming years. This rising interest in sustainable investing has converged with technological innovations, opening the door for granular, personalized, and values-aligned portfolio management. 

And because everyone has unique values and causes they care about, personalization is a key benefit and driver of sustainable investing. Values-based investing unlocks this next level of customization and turns investing into an engaging reflection of personal beliefs and ideals. 

The full circle movement of values-based investing 

Values-based investing began as an exclusionary practice, where values often were prioritized over financial performance. That story has changed over the past few decades. 

Investors today are fortunate to have more choices and better investment tools, and often seek to achieve the best of both worlds: a values-aligned portfolio that does not necessarily sacrifice financial performance. And the escalating climate crisis and societal impact of COVID-19 have vaulted sustainable investing from a niche strategy into the mainstream. 

Now that sustainable and values-based investing have broader awareness and some of the myths have recently been debunked, we can focus more on the original intention of values-based investing: making a difference in society. And today, new technology makes it even easier to customize portfolios to better align with principles. 

Investment in securities involves the risk of loss. Past performance is no guarantee of future returns. One cannot invest directly in an Index. Any opinions, estimates and forecasts offered in this document constitute judgment as of the date of the materials and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information contained in this document to be reliable but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only and it is not intended to provide and should not be relied on for investment, accounting, legal or tax advice. OpenInvest may not have verified (and disclaims any obligation to verify) the accuracy or completeness of any information herein that has been provided or obtained by third parties.

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