The Holistic Finance Values-Aligned Portfolio Quarterly Update

For investors searching for impact investing companies, the question could go beyond which businesses are included in a portfolio. We believe it can also be important to understand why companies are held, how they are performing, how changing market conditions may affect them, and how shareholder rights can potentially be used to encourage responsible corporate behavior.

The Holistic Finance Values-Aligned Portfolio Quarterly Update is intended to provide that broader perspective. Each quarter, we plan to review portfolio performance, discuss factors that we believe could have influenced results, examine additions and removals, consider the broader market environment, and highlight relevant proxy voting opportunities.

This approach reflects our belief that values-aligned investing can involve both financial considerations and an ongoing evaluation of how investments relate to an investor's priorities.

What Are Impact Investing Companies?

The term "impact investing companies" can be used in different ways, so we believe defining the broader concept is helpful.

The Global Impact Investing Network states that impact investments are investments made into companies, organizations, and funds with the intention of generating positive, measurable social and environmental impact alongside a financial return.

Similarly, the Principles for Responsible Investment (PRI) and CFA Institute’s Definitions for Responsible Investment Approaches cites US SIF’s definition of impact investing as investment in companies, organizations, and funds with the explicit intention of generating positive social and environmental impact alongside a financial return. The cited US SIF definition notes that the financial return can range from below-market to market-rate returns.

For Holistic Finance, we believe a values-aligned portfolio can potentially provide investors with another way to consider their financial objectives alongside issues that matter to them. That does not mean every company will perfectly reflect every investor's values, nor does a values-based approach guarantee positive investment performance or positive social or environmental outcomes.

Instead, we believe the process requires ongoing evaluation.

Reviewing Quarterly Portfolio Performance

One part of our quarterly update is a review of portfolio performance.

We plan to discuss how the Values-Aligned Portfolio performed during the quarter and examine factors that we believe may have contributed to those results relative to the broader market.

That review may include companies that performed particularly well and companies that performed poorly during the period. Where appropriate, we may also discuss our understanding of factors that could have contributed to individual company performance.

Investment performance can be influenced by many variables, including factors that could have little to do with a company's social or environmental characteristics. As a result, we believe short-term results should be considered within the broader context of an investment strategy rather than viewed in isolation.

Any discussion of investment performance also requires care. The SEC's investment adviser marketing guidance states that advertisements may not discuss potential benefits without fair and balanced treatment of associated material risks or limitations. The same guidance includes specific requirements concerning how investment performance may be presented.

Past performance does not guarantee future results, and investing involves risk, including the potential loss of principal.

Why Portfolio Holdings May Change

We feel another important part of the quarterly update is discussing changes to the portfolio.

When a company is added, we plan to explain the reasoning behind that decision. When a company is removed, we plan to discuss why we believe it may no longer be appropriate for the portfolio.

We believe this can provide investors with greater context than simply presenting a list of holdings.

A company's inclusion or removal could potentially reflect multiple considerations. Depending on the circumstances, we may consider financial characteristics, portfolio construction considerations, business practices, governance issues, environmental or social factors, or changes in our understanding of the company.

Importantly, the inclusion of a company in a values-aligned portfolio should not necessarily be interpreted as an endorsement of every action taken by that company.

We believe values-aligned investing can be an ongoing process rather than a one-time classification.

Putting Impact Investing Companies in Market Context

Portfolio results do not occur in isolation. For that reason, the quarterly update will also consider what we believe is happening across financial markets more generally.

Broader market conditions could potentially affect individual holdings and the portfolio as a whole. Reviewing this environment can help provide context for why certain investments behaved differently during a particular quarter.

We believe this context is especially relevant when discussing impact investing companies because financial performance and values-related considerations can represent different dimensions of an investment decision.

A company that appears aligned with certain environmental or social objectives could still face financial risks. Likewise, a company with strong financial results during a particular period may still present values-related concerns that warrant additional evaluation.

Our goal is to consider these issues without suggesting that values alignment eliminates ordinary investment risk.

Proxy Voting and Shareholder Voice

Values-aligned investing can potentially extend beyond deciding which securities to own.

When applicable, shareholders could have opportunities to vote on matters presented through the proxy process. We believe these votes can provide a way to consider corporate governance and other issues relevant to portfolio holdings.

The SEC has described the shareholder proposal process as a mechanism for shareholder engagement with company management and has identified subjects including climate change, workforce diversity, independent board leadership, and corporate political spending as issues that have appeared on proxy ballots.

For the Values-Aligned Portfolio quarterly update, we plan to highlight proxy voting opportunities that we believe are particularly relevant to the portfolio and its objectives.

Depending on the proposals presented by portfolio companies, these could involve subjects such as climate-related matters, workplace issues, corporate governance, or other environmental and social considerations.

Proxy proposals can cover a wide range of topics. For example, current proxy-voting materials filed with the SEC describe social and environmental proposals covering subjects including consumer and product safety, environment and energy, labor standards and human rights, workplace and board diversity, and corporate political issues. See the SEC-filed proxy voting materials.

We believe reviewing these votes can help investors better understand how shareholder ownership could potentially provide opportunities for engagement.

A More Complete View of Values-Aligned Investing

When people search for impact investing companies, it can be tempting to look for a definitive list of businesses labeled "good," "sustainable," or "responsible."

We believe the reality can be more nuanced.

Companies can change. Business practices may evolve. Financial conditions could also change. New information might become available. Shareholder proposals can arise. An investment that appears appropriate at one point may warrant reconsideration later.

That is why we believe quarterly communication is an important part of the Values-Aligned Portfolio process.

Our quarterly updates are intended to address four central areas: portfolio performance and the factors we believe influenced it, companies added to or removed from the portfolio, our perspective on relevant market conditions, and significant proxy voting opportunities associated with portfolio holdings.

Together, we believe these areas could provide a more useful picture of what values-aligned investing can look like in practice.

Continuing the Conversation About Impact Investing Companies

At Holistic Finance, we believe investors should have the opportunity to understand both the financial considerations and the values-related reasoning that may influence a portfolio.

The quarterly update is intended to make that process more transparent by discussing what happened, what changed, and what we believe deserves attention going forward.

Investing according to personal values does not eliminate market risk, and an investment's environmental, social, or governance characteristics do not guarantee financial performance or measurable impact. However, we believe thoughtful portfolio review and shareholder engagement can potentially help investors evaluate whether their investments continue to reflect their objectives.

For investors researching impact investing companies, we believe the most useful question may not simply be, "Which companies qualify?" But perhaps rather, "How are these investments being evaluated over time, and how does that process connect financial considerations with the values I want my portfolio to reflect?"

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Disclosures

This article is provided for general informational and educational purposes only and should not be construed as individualized investment, financial, tax or legal advice. References to responsible investment are educational and do not constitute a recommendation of any particular security, investment product or strategy. Investing involves risk, including the potential loss of principal. Individual circumstances vary, and any investment approach should be evaluated based on the investor's objectives, circumstances and applicable disclosures. Advisory services are offered through Holistic Finance LLC an SEC Investment Advisor. Holistic Finance LLC is not affiliated with or endorsed by the Social Security Administration or any government agency.

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