Maybe you’ve heard the buzzwords: ESG, socially responsible investing, or values-based investment portfolios. And maybe you’re wondering, “what do they actually mean?” Or, more importantly, “how do they actually perform?”
As someone who gets a lot of questions from clients about the impact of their investments, I want to offer my take on values-based investment strategies. Ultimately, I want to answer the question, “is it possible to invest in a portfolio that aligns with my values?”
If you’ve been curious about aligning your money with your values—but unsure how it affects your portfolio—this guide breaks down the pros, cons, and practical ways to do it.
What is values-based investing?
At its core, it’s the act of aligning your values with your investments.
This can encompass your personal values, your beliefs, or your ethical considerations. Generally speaking, it’s broken into the following categories:
ESG
This stands for environmental, social, and governance. This looks at the impact companies have on the environment, of course, as well as how socially responsible they are. It also takes into account whether their governance—or way the company is run—is equitable or honorable. So, this could include businesses that represent women as primary stakeholders, for example. Or it could include businesses that use biodegradable supplies in their facilities.
This is a wide-ranging umbrella, which means there are a lot of companies that boast an ESG slant. These companies are usually evaluated both by ESG practices and strong financial performance.
Socially Responsible Investing (SRI)
This is tied to ESG, to a certain degree, but SRI is more focused on ethics. In that sense, SRI is more exclusionary. For example, an oil company with a plan to transition toward renewable energy can be considered ESG. But under SRI, a company with any unethical practices (such as controversial oil drilling) would be excluded from consideration. What’s ‘unethical’ is usually defined as addictive (substances or gambling affiliations) or environmentally destructive.
Essentially, SRI includes companies that have a sort of social contract in place. Patagonia, for example, is famous for this. They’re a B Corp organization that engages in environmental activism and utilizes sustainable business practices. Basically, these companies carry a viewpoint of, “yes, we are using capitalism, but we also understand that there’s more to life than the transactional business relationship and we want to honor what is ethical.”
There is often a social justice, sustainability, or clean energy angle to SRI companies.
Impact Investing
When you use your dollars to invest in specific groups or causes that are important to you, we’d call that impact investing. It’s the idea that you’re investing in companies that are ‘creating a better world.’
Low-income housing is a good example. You can invest in development projects that seek to increase affordable housing options for people in a low income bracket. In this case, you’re using your money to make a direct impact on the way an urban landscape is shaped. You are effectively helping to create a tangible change. Sustainable agriculture is another example.
Impact investing is a way of putting your money where your mouth is. If you believe in a specific vision for the world, put your money toward the businesses that are making it happen.
Faith-Based Investing
It’s as straightforward as it sounds. This is where you’re investing your dollars directly to companies that align with your faith.
So whether you’re Jewish, Christian, Muslim, or any other faith, you can have an investment strategy that aligns. This might require a little bit of research, right? But it’s similar to impact investing in that you feel like your dollars are directly supporting businesses that align with your core values.
Why do some investors choose values-based investing?
In a lot of ways, values-based investing is a way to feel like you’re making a positive impact on the market. You are supporting the businesses that align with your beliefs and ethical considerations. And that’s awesome. It can be great for a lot of folks.
It also allows you to avoid certain investments that you don’t believe in. We’ve seen this with tobacco. We’ve seen this with companies that produce firearms or missiles or other nefarious products. We’ve seen it with gambling, even.
And I think that’s fair. You are allowed to participate in the free market—in capitalism—while also having some restrictions. You’re allowed to have a say in where your money goes.
This trend, conscious capitalism, has really taken hold over the last fifteen—maybe thirty years. Sometimes it’s seen as ‘virtue signaling,’ where you’re wearing your heart on your sleeve a bit and want your beliefs to be seen by other people. Virtue signaling has had some backlash over the years, but it’s also moved the needle on this trend as a whole. It’s created a way to ‘cast a vote’ for the players in the market that speak to what you want to see more of in the world. I don’t think that’s a bad thing.
How do you implement values-based investing?
There are a lot of different ways, honestly—but in my view, there are a few core strategies that work best.
You could buy a ‘conscious’ fund
Whether that’s ESG, faith-based, SRI, or impact, there are mutual funds that have already done the research for you. They take companies through a sort of screening process to ensure they meet specific criteria. And at the end of the day, they’ve got a whole host of companies that fit a specific sleeve.
These funds are often thematic, where they’re focusing on environmental impacts, social justice, social impact, or basic governance. There are funds with a faith-based perspective, as well. It’s sort of a ‘choose-your-own-adventure’ way to invest.
The challenge with this, practically speaking, is getting clarity on the screening process. Is it legitimate? How specifically does it align with your personal values? There’s no universal way to screen companies from a value perspective. So there’s some inherent risk that not every company will reflect your beliefs.
You could buy individual company stocks
You can look at the market through your preferred lens and say, “I’m going to create a portfolio strategy that speaks to my values” and buy individual stocks.
The limitation here, of course, is that you may have fewer investment options. Fewer companies are going public, so the playing field is more limited. Not to mention, the research may take a bit more legwork.
Another challenge might be staying on top of a company’s merit. Tesla is a good example here. When it first came to market, people loved it. They were a green energy company, they were moving away from the combustion engine, they had beautiful cars. They were doing a “good” thing. And then it became clear that the batteries had to be sourced from somewhere. And, ethically speaking, it became very gray. When it came to light that Tesla was mining for rare earth metals that had negative impacts on the environment and in other areas, it wasn’t such an easy sell as a ‘conscious’ choice.
You could invest in private companies
This strategy works well if you know the business owner or the person building a company you believe in. Maybe you see the impact they’re having in their community or you want to support their cause. Investing directly would ensure you make the biggest impact.
Of course, there’s also inherent risk here. Before a company goes public, there may be more industry volatility. You also run into the same issue that you do when you invest in individual stocks, where you’ll have to stay on top of the company’s trajectory to ensure it’s consistently aligning with your values.
Tesla is a perfect example, again. Within the last couple of months, we’ve seen people abandon Tesla stock because they don’t believe in Elon Musk’s political views or with what he stands for anymore. This can happen with any business you invest in. Sometimes you think it’s headed in one direction and it takes a sharp left turn.
When choosing how to invest consciously, don’t forget about diversifying.
Each strategy—investing in a conscious mutual fund or EFT, investing in individual stocks, or going private—has their own benefits and downfalls. Regardless of the path you choose, you also want to make sure you have a diversified portfolio. This can be challenging, but it can be done.
How do values-based investments perform?
There’s a lot of debate around this. And what the debate really looks at is, “are we looking at this from the broader market, or individual stocks?”
For example, if you look at the last two years—2023 and 2024—values-based portfolios performed really well. But was that because they were values-based? Because, overall, the market did really well. We have to understand the attribution of those returns.
Is it actually that ESG or SRI is better? Or is it that it’s just part of the bigger market? Do all boats rise in a rising tide?
To gauge this, you have to consider the actual return metrics. There has been some research that suggests, yes, a values-based approach is more advantageous from a return perspective. But that same research has been criticized as having holes in its methodology. So, it’s really still up for debate.
Ultimately, you have to consider your overall goals and choose what’s right for you.
Ask Yourself: “What am I ultimately solving for?”
When considering the inherent tradeoffs and risks of conscious capitalism or values-based investing, we’ve got to consider practicality.
I recently had a client who wanted to create some more growth off their portfolio. Would values-based investing be the best investment choice for them? Probably not.
You can think of it in the same way. What’s your ultimate goal? Are you trying to maximize return? Are you trying to minimize risks? Or are you trying to express your values?
If your mindset is that carbon policy is negatively affecting the world, you’ll likely opt-out of investing in oil or gas. Maybe you’ll invest in green energy, instead. You might lose out on maximizing your return, but maybe you’re able to minimize risk in the process.
Before diving into values-based investing, one of the most insightful steps you can take is to evaluate where you’re already spending your money. I often notice a disconnect between what people say they value and where their dollars actually go. For example, someone might express that they care deeply about health and wellness, but their regular spending includes fast food or brands that contradict that belief. The same principle applies to investing—alignment starts with awareness. Take some time to audit your own financial habits and ask: “Is my money truly supporting the things I care about most?” That clarity makes it much easier to build an investment strategy that feels aligned and intentional.
Final Thoughts
These are the considerations to think about. When my clients ask me about values-based approaches to investing, I lay it out the same way. We look at which values they’re targeting and weigh them against their ultimate goal. Values-based investing can be an excellent choice, but there are a few snakes-in-the-grass if you’re not considering all the angles.
If you’re looking for ways to make your portfolio a little more conscious, my team at Four Points Wealth would be happy to have the conversation. We can help you weigh the risks, analyze the return profiles, and ultimately decide how to proceed. It’s entirely possible to meet your investment goals while aligning with your values, beliefs, and ethical concerns. It just takes a little finessing to ensure you feel good about your overall investment strategy—and that’s what we do best here at Four Points Wealth Management.
Four Points Wealth Management
About the Author: Taylor Leary is a Certified Financial Planner in Denver (CFP®), specializing in guiding professionals through the complexities of wealth-building and financial planning. With his dynamic, relatable approach, Taylor provides tailored strategies to help his clients achieve their personal and professional goals. Whether it’s navigating real estate investments, retirement planning, or cash flow management, Taylor brings clarity and confidence to every financial journey.
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