What is values-based investing?

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

Sustainable investing’s transition from niche strategy to mainstream prevalence has secured its future in the financial industry. Rising interest in sustainable investing (SI) opens the door for values-based investing (VBI), an investment strategy 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 better align portfolios with principles.

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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.

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Several approaches fall under the SI umbrella, including:

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• Values-based investing: Reflecting your values through an investment strategy that avoids or increases exposures to specific companies, sectors, or business practices.
• ESG: Actively considering environmental, social, and governance (ESG) factors as a key component of the implementation and portfolio construction investment decisions.
• Thematic investing: Investing in companies that target specific themes or issues, such as water, clean energy, and gender diversity. 
• Impact investing: Investing in companies, organizations, and funds with the intention of generating positive social and/or environmental impact alongside financial return.

What is values-based investing?

Values-based investing can offer investors a higher degree of customization and personalization, which are trends defining the future of wealth management. Thanks to recent technological innovations and an increasing number of options, it’s becoming easier for investors to select investments based on personal values while still considering returns. 

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Values-aligned portfolios are not new to the market. Historically, VBI eliminated exposure to so-called “sin stocks,” such as alcohol, tobacco, and firearms. Today’s investors can take a more nuanced approach by using technology to better match their investment choices relative to a growing list of values.

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Here’s what that looks like in practice:

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• 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: VBI allows investors to potentially be very targeted in their cause selection by tilting portfolios toward specific topics while screening out companies that do not align with their values. For example, investors who are passionate about reducing gun violence could use a values-based investing strategy to screen their portfolio for weapons involvement. 
• Personalized reporting: VBI gives investors insight into their portfolio’s sustainability metrics through personalized and engaging reporting, data flows, portfolio analytics, and more.
• Dynamism: Investors can use VBI to analyze key environmental and social characteristics of individual holdings over time, which can influence their decision to invest or divest according to their values. 

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What’s the benefit of values-based investing?

By incorporating values into a portfolio, investors can feel more comfortable about where their money is going while still pursuing returns. However, VBI now extends beyond basic investing decisions. New innovations like personalized reporting can provide updates about the environmental and social metrics of a specific investment strategy. This additional context not only provides tangible sustainability feedback—such as the number of one-way flights their portfolio avoided—but it also allows for more streamlined, values-based investment decisions.

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We believe that sustainable investing has become more than just a trend—it’s providing investors with more information about their investment choices beyond a financial perspective. According to a recent survey by Chase Insights, 66% of ultra-high net worth respondents already invest sustainably, and 36% expressed interest in adopting a sustainable investing strategy. 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, particularly as millennials and Gen Z accumulate more wealth. This rising interest in SI has converged with technological innovations, opening the door for more granular, personalized, and values-aligned portfolio management. 

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Everyone has unique values and causes they care about. This is why personalization is a key benefit and driver of sustainable investing. VBI unlocks this next level of customization and turns investing into an engaging reflection of personal beliefs and ideals.

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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. 

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More choices and better investment tools can help today’s investors achieve the best of both worlds: a values-aligned portfolio that also considers financial performance. The escalating climate crisis and societal implications of a post-pandemic world have vaulted sustainable investing from a niche strategy into the mainstream. 

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Now that sustainable and values-based investing have broader awareness and buy-in from investors, we can focus more on VBI’s original intention: having the potential to align portfolios with principles. And today, technology is facilitating an even higher level of customization. 

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