Introduction to Longwave and ESG Investing

By Brandon Wester, CFA Chief Investment Officer

Introduction:

Longwave Financial is committed to providing values-based wealth management strategies and advice in a holistic manner for our clients. We take an approach that integrates ethical, sustainable, and deliberate management not just in the investments we recommend but throughout the entire value chain. Our holistic approach to investing considers not only our client’s values but how we as a firm and our investment partners play a role in delivering our impact-oriented services.

Many of our client’s priorities are their families and the next generation. By considering our capital’s impact on the communities and world around us we can work towards a future with a cleaner environment, more fair systems, and better governance. We do this while maintaining a focus on the financial wellbeing of our clients and their legacy or wishes for the wealth they have cultivated over their lives.

The investment trends of 2025 in the sustainable space are much different than that of a few years ago. New policies from the SEC around disclosures and naming have made it more difficult to provide products in the space and market them. This has caused consolidation in the industry as funds left the marketplace and were sold off. This changing landscape along with having to discern from greenwashing, true impact and everything in between can be a difficult endeavor as the resources and knowledge needed to execute authentically can be substantial. It is easy to chase the next fad or get caught up in buzzwords that surround the sustainable investing space, but we have seen how the industry has changed, and we can help guide you from what is material and what is simply marketing.

Section 1:

Defining ESG Investing:

Values-based investing has gone by many names throughout history. Here in the Americas, it began in the 1770s, with the Quakers who came here as pilgrims in search of religious freedom. They had laws of business dealings that prohibited lending or investing in practices such as gambling, tobacco, slavery and alcohol. The ban of these so-called “sin stocks” were the original “social investing” frameworks and led by religious doctrine.[1]

The first forms of modern day socially responsible investing surfaced in about the 1960s and ‘70s alongside the fervor of the Vietnam war and South African apartheid.[2] Endowments of universities responded to what they saw as injustices and divested from South Africa. By 1988 there were 155 university endowments that had fully liquidated their investments in the country.[3] For the first time, at least in United States history, investors adhered to ethical considerations past religious mandates and began to work themselves into a more holistic framework. University endowment systems and their consultants brought a new type of ethical consideration into the investing world.

Off the back of this movement, the “SRI” (socially responsible investing) process was born. It encompassed the traditional “sin stock” exclusions such as tobacco, alcohol, guns, and gambling, but newly included limiting investment in regions which lacked human rights and companies that exploited those communities.[4] As you see, there is still a strong emphasis on the social aspect here.

The environmental piece was a further revolution, that again reinvented the values-based investing space in the 20th century. Along with the first Earth Day in 1970 came the emergence of the first “sustainable” investment funds. In the 1980s the Exxon Valdez and Chernobyl disasters drew new attention to sustainable considerations, and to how poor environmental business practices can hurt returns as well as communities[5]. The Sustainable Investment Forum was born as a result, which Longwave is a member of today.

In 2004 the United Nations Principles for Sustainable Investment combined the separate theories into a unified “ESG” or environmental, social, and governance framework.[6] In 2010, the disastrous BP oil spill destroyed entire ecosystems and cost the company billions, and consequently prompted many billions more in assets to flood toward ESG-aligned products.[7] Many in the industry consider this the “beginning” of the modern trend toward values-based investing.[8]

However, with increased demand comes increased supply, and not all products are created equally. An explosion of funds calling themselves “ESG,” “SRI,” and “Sustainable” make their way into client portfolios today, with little or no scrutiny as to what these terms meant and what the funds could own. With little to no support from technology or third-party watchdogs, it was buyer beware when it came to these ESG funds that were often expensive, varied tremendously and lacked transparency. The term “greenwashing” was coined to describe this: when an investment product labels itself as an ESG-aligned vehicle yet does fundamentally little to address the framework’s legitimate concerns.[9]

Longwave’s Perspective:

This brings us to today, and to where Longwave’s comprehensive investment perspective comes in. First and foremost, we are a fiduciary asset manager. This means that above all we place your financial wellbeing and interests above other concerns. We believe that we can maintain our fiduciary responsibility to our clients while considering the impact of their capital on the people, planet, and systems around them.

We feel this way because of our extensive experience in the space, and because we have understood the landscape and its changes for decades. In short, it is personal to us. We have developed significant financial literacy and discernment surrounding what it means for a product to be authentically values-aligned, and what is not. We believe we have created a process that is as rigorous as you will find in the ethical investing industry and provides exceptional value to our clients.

One of the major facets of our process is  our focus on going deeper than the underlying holdings. We often engage with fund providers on their shareholder activism with underlying companies to ensure we maintain alignment through not only ownership but also governance advocacy. We must not only consider your underlying holdings, but where your fees within the investment industry are going. This has a measurable impact on your portfolio, and so we have aligned our own business with the strategies we implement for our clients. We are a member of 1% for The Planet, Sustainable Investment Forum, and Green America, and aim to give back to our communities in various other ways from service to advocacy.

We also focus on reducing fees in our strategies, as we believe you shouldn’t have to pay more for values-aligned investing. Our holistic approach considers all aspects of the value-chain throughout your investment lifecycle.

Importance in 2025:

Looking to the future, we see a much different landscape for values-based investing than we saw in the past decade. The amount of formalization, through transparency, systemization and consolidation of strategies, has gone up. Also, as we continue to live through historically warm years and experience more deadly climate events, people are increasingly aware of the affects our actions and capital has on our daily lives. Past the climate issues, we also see increased tensions between countries: war in Europe and the middle east, as well as an increasingly hostile China.

The awareness of these global issues and how they could negatively affect financial assets should be considered in investment portfolios and integrated into the analysis framework, when appropriate. During times of increasingly tumultuous events, it is a good idea to include these facts as data points in an investment process.

This is another key aspect of socially responsible investing; it looks past the accounting statements of businesses and considers how they may be adversely affected by their own actions on the world around them. We consider this when designing investment strategies.

Section 2 (Market and Technological Influence):

Current Trends:

A bolster to the ESG investing trends of 2025 is the emergence of better technology and AI capabilities in analyzing companies for ESG related data points. Data that tracks social responsibility and environmental factors can be vague and hard to measure. This has been a concern about the ESG investing landscape since its inception, and one of the main criticisms.

However, in the recent years we have gotten more top-down regulation and better data to standardize what are considered material ESG related data points. With this more rigorous standard many values-based investors have exited the space due to the increased scrutiny.[10] This is seen as a positive from our point of view because if you are not willing to put the resources into the ESG process you are potentially jeopardizing your ability to provide a product that best aligns with your client’s values while maintaining fiduciary principles.

Role of Technology:

At Longwave we have embraced the new standards and technology available to us. Allowing us to have a more holistic understanding of our ESG related investment screens and outreach campaigns being run by fund providers. We utilize data from many providers that are using AI to sift through millions of data points on all publicly traded companies to determine what is worth engaging or divesting over and what is not to help maximize our values-alignment, and support our client’s financial wellbeing.  These capabilities were not available to us just a few years ago and the process was mostly manual. With the increase in automation of the process and more repeatable, reliable processes, costs have come down. This is a great tool for our clients that utilize Longwave’s ESG insights.

Longwave’s Insights:

 We have always believed that clients should not have to pay more just because they want to incorporate environmental, social, or governance factors into their portfolios. Now, over the last few years the price of investing in an ESG conscious way has come down dramatically and we actively seek the most authentic yet cost-effective way of achieving our clients’ goals.[11] There are now several investment vehicles that incorporate values alignment while competing with major financial companies on cost. Longwave also stays involved by engaging with our peers in the investment industry that provide ESG investment funds to voice our client’s desires and possibly improve opportunities that are in the best interest of our clients. We are often the link between our clients and the investment firms that create products. It is our job to diagnose the needs of investors and seek their best match in the marketplace, and we take that job very seriously as fiduciary asset managers. By embracing a constant learning attitude, a dedication to providing values-based strategies, and utilizing cutting-edge technology, we believe we offer a value proposition that clients appreciate. We fully understand where the industry has been and its development but are among the first in line to champion innovations that will make us better in the future.

Section 3 (Aligning Values and Planning):

Identifying Your Personal Values:

At Longwave we assess our clients’ needs and desires for the capital allocation first. We lead with planning and understanding the financial/social relationship first. This means as a part of the onboarding process we gather interest in the approach as well as what areas of interest you specifically have. This will look like a questionnaire that asks many questions around different types of ESG data that we consider and how warm you would be to the idea of integrating them in your portfolio construction.

We find that clients have varied interests when it comes to values-alignment and while some may care more about environmental issues, others may lean towards social considerations. Longwave takes a holistic approach that attempts to focus on what is material in each category and implement it. However, it is good to gauge our client’s interest and personal values so we can tailor the conversation of our offerings towards the pieces they would find valuable.

How Longwave Approaches Values-Based Investment Planning:

After we’ve understood your personal mission and goals, we dive deeper. We build out your capacity and desire to take on risk in your investment portfolio. We determine your retirement plan, goals, taxes, insurance, trust and estate and much more. We go beyond your desire for values-alignment and reach to understand the complete picture of your entire financial well-being. We can then stress test your portfolio, and likelihood of success in reaching your stated goals.

Once this groundwork is laid out, we implement the plan and  investment portfolio. Aligning investments with values is just one of the many crucial steps in our partnership.

The DIY Approach and Longwave’s Support:

Many clients that come to us for our ESG experience and insights have already attempted to learn more about the process and what products suit them. Many have been frustrated in their attempts to do this for a few common reasons:

• The quality of adherence to values-based investing guidance is inconsistent across the industry. Many products available are greenwashed and may not align with their stated values.

• There is a steep learning curve to discerning between what products are truly in line with your values.

While we recommend taking some initial steps to ascertain your interest in investing with ESG screenings, we usually advise to not go it alone. Compared to traditional investing, ESG investing can be more difficult to assess and implement. There is substantially more data to comb through, and marketing gimmicks surrounding the space.

At Longwave we have dedicated significant time in education, technology and experience to build out a comprehensive process. Our advisors take courses from Columbia Business School Executive Education Program on ESG investing and receive a certificate for their completion of the curriculum. Even if you feel that you have a grasp on being able to determine what is authentic and not amongst the plethora of ESG investment options, having the knowledge to implement the portfolio using a fundamental and academically rigorous theory is something that requires specialized knowledge.

The benefit of Longwave investing in these resources and knowledge base is that we can offer this as a benefit to working with us. Going into ESG wealth management half-baked may only get you half-baked results. We have learned that in this industry, as well as in life, you get what you put into it.

Section 4 (Exploring Investment Vehicles):

Direct Investments:

Direct investments are those such as individual stocks and bonds. Many investors that go out on their own tend to own direct investments through providers like Robinhood, Fidelity and other lost cost brokerages. The main benefit of this approach is that there are generally relatively low hard costs, such as expense ratios or management fees. However, being successful with this approach may require a higher level of knowledge, and usually has the highest implicit costs to implementation.

When taking ESG considerations into your investment decisions, and owning individual stocks and bonds, this approach requires near-constant monitoring. This is more than many people have time for, and in order to build a well-diversified portfolio you would have to own dozens of stocks across multiple countries, sizes, and industries. Building this out by selecting companies after extensive financial and ESG analysis, then monitoring and rebalancing is not something one person can usually do, even as a full-time job. This is often done by entire companies of many specialized individuals.

Funds & ETFs:

Most investors tend to utilize mutual funds and ETFs when investing in an ESG conscious way. Sustainable ETFs have exploded in the last few years as financial institutions attempt to meet the demand of socially concerned investors.

The criteria of what makes a sustainable or ESG fund different from a traditional fund is not standardized and the marketing of the fund, including the name is not well controlled. There have been many instances of fund names promoting a certain ESG consideration and the firm not delivering on that promise. You will find most of your greenwashing and marketing gimmick concerns with ESG investment funds, green bonds, and impact investments. This is why, even when investing in funds where you think you know what you are getting from the label, it takes expertise to see past the name.

A lot of the assets invested in the ESG space flow towards index funds that divest from the worst actors in each given industry but ultimately attempt to match the benchmark.[12] While this approach can be suitable for some values-aligned investors, not all will find it adequate. While they are usually very low cost, they may not always deliver on a holistic framework that we prefer at Longwave. We generally want not only the funds to be intentional in their integration of ESG factors, but we want to fund providers themselves to be actively engaged with their communities, environment, and employees.

Tools for Evaluating Investments:

We often see that clients will use free tools like As You Sow’s investment fund research tool. While this is a good start, tools like these often lack detail and authenticity, not to mention the fundamentals of how to construct and implement a well-crafted investment portfolio. This can be short-sighted, as single-variable tools which check “scores” will often give true impact-oriented investments poor grades.

An impact-oriented investment is one that doesn’t just divest from bad actors such as oil and gas companies, but rather leans in and attempts to promote activism through ownership. There have been many success stories from companies like Engine No.1 that put board members on Exxon to change their business habits for the greener.[13] There is a strong case to be made that these types of investments actually make an attempt to reduce carbon emissions and other potentially harmful business practices more effectively than funds that just divest.

Utilizing research tools and ratings without a deep understanding of the industry and what that tool is aiming to do can be counterproductive to the goals of ESG investors. We utilize a broad set of data tools that give us deeper insights than many available for free on the internet which we believe gives us a better understanding of what our clients are investing in and how to make improvements.

Longwave’s Offerings:

The funds we recommend to our clients were carefully selected after months of research. We utilize them in a manner that is fundamentally sound and we believe gets the most out of each strategy. Given that Longwave is an independent wealth manager, we can select from the broad marketplace of products. This allows us to use whatever product we think is optimal at the time and we don’t get a kick back from our parent company to sell their products. This is a massive advantage we believe and a necessary situation to be an independent wealth manager. Our research process is also never done. We are persistently searching for new products that achieve our ESG client’s goals in cheaper, and more efficient ways.

Section 5 (Assessing Performance Challenges):

Performance Overview:

Performance is often an area of interest for those curious about investing in a values-aligned way. Our response to this question is that it is hard to just come out and say definitively that it will be better or worse for your performance. ESG investing at the end of the day is an active strategy of investing and your experience will vary widely based on your risk tolerance, fees, and how different you want your portfolio to be from a traditional indexed benchmark, such as the All-Country World Index or S&P 500. What Longwave attempts to do is provide as much ESG consideration as possible while limiting our fees and tracking difference from our benchmarks. We do this by having a set asset allocation budget for each asset category and sticking to those relative weights in the portfolio. If you were to look simply at the ACWI ESG benchmark vs the traditional ACWI benchmark over the last 10 years and beyond, you will see very similar results. However, benchmarks and indexes are not directly investible, so don’t expect to exactly replicate those results. Also, an indexed approach while integrating ESG concerns may not be adequate for most ESG concerned investors. When you work with Longwave to build out your values-aligned portfolio, we will determine your comfort with risk, and that will be your primary driver of returns, along with fees and tax management, which we aim to control.

Risks & Mitigation:

One of the main arguments for considering environmental, social and governance factors in your portfolios is to control for long-term risks that are not captured on the financial statements of the companies we invest in. These are things such as flooding and weather damaging logistics, oil and gas companies having to pay for damages, and other forms of indirect risks companies may face due to their actions. If a company has a long history of scandal and is not addressing the issue but just paying out lawsuits, this could hurt the bottom line and should be considered in the investment process. These are the types of concerns that ESG frameworks contend with. If ESG investing outperforms in the long run when controlled for other variables, it is likely to be that it was because the process helped clients avoid unnecessary volatility and risk, providing a smoother experience, and hopefully did a lot of material good along the way.

Section 6 (Action Steps and Future Outlook):

DIY Steps:

To begin your journey into values-alignment with your capital we would recommend a few steps. The first is education. We have some great articles on our website about ESG investing and what we are doing at Longwave under our perspective and ideas tab on our website. Another good source of information is the United States Sustainable Investment Forum. There you can learn a lot about the basics, as well as what is currently going on in terms of industry trends and policy coming down the pipeline. However, if you would rather have Longwave do the research for you, we are always open to taking the lead on education for our clients and prospects.

Another crucial step is determining what your major concerns are, and how those might affect your portfolio. This is what we use our ESG values-alignment questionnaire for, and we can go over the results with you in advance of creating your portfolio. ESG investing action steps can be as small or as big as you want them to be, but Longwave’s services are here to support you on your goal to a portfolio that feels more aligned with your concerns.

Consulting Specialists:

There are also specific funds and investment vehicles that are difficult-to-impossible to access on your own. Most of these types of funds are usually private placements or housed in sophisticated vehicles like SMAs (separately managed accounts). For clients who want to go a step further in their quest to actively place capital where they think it will have the most impact, and who meet the higher asset requirements for these funds, we are here to consult and assist you. This is an area where we can offer tremendous value through our extensive network and knowledge of not only the landscape but investment partners that are aligned with your values. Generally, the deeper and more sophisticated you want to go, the more guidance is necessary.

Emerging Trends:

An emerging trend we have been seeing is a cracking down on terminology and standards. This has caused many ESG and sustainably labeled funds to exit the marketplace as they couldn’t meet the new standards.[14] It makes you think if they couldn’t live up to the new standards, were they ever truly “sustainable” to begin with? Our goal is to only work with funds that are not susceptible to these closures over labeling. This level of detail and monitoring is what Longwave brings to our clients and their portfolios every day.

Conclusion (Empowerment & Call to Action):

Inspire Action:

A lot of marketing and calls to action we see from firms promoting their sustainable portfolios or ESG competency say you should work with them because of scare tactics. We always hear about how the environment is past repair or people around the world are being taken advantage of by their systems. We have heard the stats and know the consequences of our actions by now. While we may agree with some of the doom and gloom, we also see the good, because we attempt to promote it through our portfolios and personal actions here at Longwave. While the progress may be too slow as of now, we are making progress towards a more sustainable future and we are proud of the people, like our clients that are making that possible. That is why we believe in spreading the good and the progress we are making with our clients and prospects. Many seem to aim to make the world more divisive by shining the brightest lights on the darkest stories; we aim to do the opposite. We believe that it is through encouragement and collaboration, not shame, that we build real momentum in our movement to treat our planet, people, and systems with dignity.

If our perspective resonates with you and you’re ready to align your portfolio with values-based concerns you may have, Longwave is always ready to listen. We will hear your perspective, your needs, your wishes, and goals. We will take it all in and construct a partnership that both parties feel will not only leave a legacy for yourself, but the world at large.

Investments are subject to risk, including the loss of principal. Environmental, social, and governance (ESG) criteria is based on a set of nonfinancial principles in addition to financial principles used to evaluate potential investments. The incorporation of nonfinancial principles (i.e., ESG) can factor heavily into the security selection process. The investment’s ESG focus may limit investment options available to the investor. Past performance is no guarantee of future results.

Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Past performance is no guarantee of future results. Talk to your financial advisor before making any investing decisions.

All indices are unmanaged, and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance does not guarantee future results.

[1] Quakers in the World: Eliminating Slavery amongst Quakers: https://www.quakersintheworld.org/quakers-in-action/58/Eliminating-Slavery-amongst-Quakers

[2] SMU College: The Anti-Apartheid Movement in North Texas: https://blog.smu.edu/theanti-apartheidmovementinnorthtexas/history/divestment/

[3] Investopedia: Protest Divestment and the End of Apartheid https://www.investopedia.com/articles/economics/08/protest-divestment-south-africa.asp

[4] Corporate Finance Institute: Socially Responsible Investing https://corporatefinanceinstitute.com/resources/esg/socially-responsible-investment-sri/#:~:text=The%20socially%20responsible%20investing%20approach,of%20buying%20and%20selling%20humans.

[5] TechTarget: A Timeline and History of ESG Investing, Rules, and Practices: https://www.techtarget.com/sustainability/feature/A-timeline-and-history-of-ESG-investing-rules-and-practices

[6] TechTarget: A Timeline and History of ESG Investing, Rules, and Practices: https://www.techtarget.com/sustainability/feature/A-timeline-and-history-of-ESG-investing-rules-and-practices

[7] MSCI: The BP Oil Spill and ESG https://www.msci.com/documents/10199/5b94cf49-421e-4c71-b65c-39b446d6dab3

[8] MSCI: The BP Oil Spill and ESG https://www.msci.com/documents/10199/5b94cf49-421e-4c71-b65c-39b446d6dab3

[9] TechTarget: A Timeline and History of ESG Investing, Rules, and Practices: https://www.techtarget.com/sustainability/feature/A-timeline-and-history-of-ESG-investing-rules-and-practices

[10] Harvard Law School Forum on Corporate Governance: Is 2024 Past Peak ESG?: https://corpgov.law.harvard.edu/2024/09/16/is-2024-past-peak-esg/

[11] PA Future: Morningstar: ESG Funds are cheaper than conventional strategies https://future.portfolio-adviser.com/morningstar-esg-funds-are-cheaper-than-conventional-strategies/#:~:text=The%20report%20added%20ESG%20funds,has%20resulted%20in%20lower%20fees.

[12] Statista: Largest ESG ETFs in the Americas as of August 2024 Based on AUM https://www.statista.com/statistics/1297453/largest-esg-etfs-worldwide-by-assets-under-management/

[13] Engine No.1: ExxonMobil: One Year Later. https://engine1.com/transforming/articles/exxon-mobil-one-year-later/

[14] Harvard Law School Forum on Corporate Governance: Is 2024 Past Peak ESG?: https://corpgov.law.harvard.edu/2024/09/16/is-2024-past-peak-esg/