my values or my investments… why not both? implementing esg

joe carlson, senior financial planner

Most investors are familiar with the terms ESG, socially responsible, and sustainable investing. However, these investment philosophies can mean very different things to different investors. Over the past ten years, investors have flocked toward responsible investing. ESG has blazed a new path into the mainstream investment community. Whether it’s institutional investors or individual investors, assets have steadily moved into ESG funds.

In fact, nearly one in four dollars under professional management in the U.S. are currently in ESG oriented investments. 2020 marks the year that ESG related funds have reached $1 trillion in assets[1]. The recent surge of investors to the ESG landscape has attracted many players to specialize in this field. This has led to an abundance of data that requires particular expertise to filter through and apply to focused strategies.

At Lutz Financial, we partner with Dimensional Fund Advisors (DFA) to offer ESG investment solutions to our clients. We have written about the different options we can provide to implement an ESG strategy in your portfolio (here). This blog aims to further break down ESG investing and help you understand the different ways it can be implemented into a portfolio.


Understanding ESG

ESG stands for Environmental, Social, and Governance. People have come to realize that these factors aren’t just about improving the world, but they can also help manage risk within portfolios. It is safe to assume that the Environmental and Social aspects are more commonly known throughout the industry. DFA tailors to investors whose values align specifically with sustainable or social investing by offering exclusive options for both. I will touch more on these later.

However, ESG is also broadly implemented throughout all of their equity and fixed income strategies. Many wonder if ESG is a standalone factor that leads to higher expected returns, similar to commonly known factors like small capitalization and value companies. Extensive research has not found a reliable relationship between higher expected returns and ESG factors, like emissions intensity, for example.

Our belief is that material information, financial or non-financial, is priced into the market by investors. ESG does encompass material aspects about companies, and therefore allows the market to incorporate this information into prices quickly. Even though ESG factors may be priced into the market, there are still ways to use it to add value to portfolios.


Broadly Integrating ESG

DFA broadly implements ESG in all their portfolios through risk management. This is where the governance aspect of ESG comes into play. Risk can be managed by looking at elements of governance to prevent investors from situations where owning a particular stock may not be beneficial. One example of this is excluding companies that are closely held. These are companies that have a large percentage of their outstanding stock owned by insiders. This can put investors in a situation where insiders can take advantage of minority shareholders.

Another example is monitoring companies that are listed on exchanges. To be listed on an exchange, companies have to meet specific requirements. Companies must be listed on approved exchanges to be considered for ownership.

The third example is running daily news checks. These news checks look for companies that are involved in controversies, whether it involves ESG or not. This may be a reason to put a halt on buying any more of a company’s stock.

Governance has a direct impact on a company’s valuation and expected return. Companies with a track record of poor governance & oversight practices tend to be considered riskier by investors. To combat this, DFA looks to engage with companies to help manage risks with the goal of improving future returns. They have largely expanded their stewardship and proxy voting methods to reach as many companies as possible in an efficient manner.


Sustainable and Social Investing

At Lutz Financial, we recognize some clients have specific ESG goals, and we offer solutions that can accommodate them. From an environmental standpoint, we can construct portfolios using DFA sustainability funds that pursue lower exposure to companies with high greenhouse gas emissions or potential emissions from fossil fuel reserves, companies involved in toxic spills or factory farming, in addition to other factors important to investors. On the other hand, the DFA social funds seek to exclude individual companies involved in controversial activities, like abortion, gambling, adult entertainment, etc.

We believe that the choice to adopt a value-driven approach should not have to come at the expense of sound investment principles. The common misconception is that you must give up some return to pursue responsible investing. By integrating sustainability and social considerations with an investment solution that focuses on broad diversification and tilting towards sources of higher returns, that does not necessarily have to be the case.

Many investors around the world are increasingly aware of the effect that harmful business practices can have on the world. As a result, the ESG investment landscape has become dynamic and will continue to innovate. It is important to understand all of the ways it can be implemented in an investment strategy.

Investors are prone to flocking to “the next big thing” regarding investment trends. However, ESG isn’t just a popular trend that is currently hot. Its sheer size and asset growth rates tell us that it is a sustainable trend. If you would like to learn more about how we can incorporate it into your plan, please reach out to your advisor or contact us


[1] US SIF. (2018). Report on US Sustainable, Responsible and Impact Investing Trends 2018.

Important Disclosure Information

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Lutz Financial), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Lutz Financial.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Lutz Financial is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the Lutz Financial’s current written disclosure statement discussing our advisory services and fees is available upon request.





Joe Carlson is a Senior Financial Planner at Lutz Financial. With 3+ years of relevant experience, he specializes in collaborating with advisers to provide detailed financial planning solutions and wealth management services for high net-worth individuals, families and businesses. In addition, he works closely with the Chief Investment Officer to monitor client portfolios and implement trade requests. He lives in Omaha, NE.

  • Comprehensive Financial Planning
  • Client Relationship & Account Management
  • Trading Support
  • Financial Planning Association®, Member
  • Bloomberg Certified
  • BSBA in Finance, University of Nebraska, Lincoln, NE


We tap into the vast knowledge and experience within our organization to provide you with monthly content on topics and ideas that drive and challenge your company every day.

About UsOur Team | Events | Careers | Locations

Toll-Free: 866.577.0780Privacy Policy | All Content © Lutz & Company, PC 2021