ESG Investment Strategy – Do It Right or Don’t Do It

By Buddy Doyle, Bill Reilly and Jeff Wilk

May lily of the valley with a rare blurring of the background from the garden with flowers

The markets continue to evolve, and so do the products offered to investors. In today’s market ESG investing remains a hot topic for clients, regulators and in the news. Deciding whether or not to offer ESG products requires strategic planning, risk measurement and compliance.

In today’s podcast Oyster CEO Buddy Doyle along with consultants Bill Reilly and Jeff Wilk share what they have seen in the industry as firms decide whether to offer these products, and what firms should consider, including new product strategy, due diligence, and navigating market cycles. 


Transcript provided by TEMI

Libby Hall:  Hi, and welcome to the Oyster Stew Podcast. I’m Libby Hall, Director of Communications for Oyster Consulting. The markets continue to evolve and so do the products offered to investors in today’s market. ESG investing remains a hot topic, not only for investors, but also for the regulators. Deciding whether or not to offer ESG products requires strategic planning, risk measurement, and compliance. In today’s podcast, Oyster CEO Buddy Doyle, along with consultants, Bill Reilly, and Jeff Wilk, share what they have seen in the industry as firms decide whether to offer these products and what firms should consider including new product strategy, due diligence, marketing, and the potential rewards and potential consequences of offering these products. Let’s get started, Buddy.

Buddy Doyle:  Thank you, Libby. I’m pleased to be joined today with Jeff Wilk and Bill Reilly, and we’re here today to talk to you about ESG. Welcome, Jeff. Welcome, Bill.

Jeff Wilk:  Thank you.

Buddy Doyle:  So we’ve been talking an awful lot about ESG at Oyster and going through some of the statements that have been made by the SEC as well as some of the things that you read in the press, sort of the response. And there is certainly an ESG movement that has been going strong now for many years at this point.  Decades, I would say at this point. But there’s also a pushback against ESG that is happening and some questions about the value of ESG investing. And our clients who are broker dealers, investment advisors, exchanges, they’re mostly into the financial side of ESG and creating portfolios and trading those portfolios. But Jeff, I know you’ve done an awful lot of work in ESG. Going back to Pre-Oyster time, can you give us a sort of sense of maybe some of the frameworks out there that firms operate with? It seems like there’s an entire alphabet of different acronyms for frameworks.

Jeff Wilk:  Absolutely, Buddy, and thanks for having the conversation with us today. I think, your initial comment there, ESG goes back to the term being coined back in 2005. So it has been a while. I know when you look at the popularity of it, or I guess you can call it the growth of it, statistics I had seen earlier this year referenced over 90% of the S&P 500 companies currently publish some form of an ESG report out. So, that’s a tremendous statistic that’s out there. And the term I like to say is ESG, it’s not just about the E right there, each of those letters have their own deep perspective and frameworks behind them, whether it’s the environmental for the e, the social for the s, or the governance for the G, they’re all getting focus these days. Whereas they had started really on the environmental side, as an offshoot of the old socially responsible type of investing. And it just kind of morphed into more of the environmental, but now it’s kind of across the board.

Buddy Doyle:  Yeah, I think you’ve seen that, and that’s certainly had an impact as consumer preferences have changed to put their money where their beliefs are. I think that you’ve seen the industry follow suit and create products and services to match those preferences. Bill, have you run into much in terms of the ESG structure, both as a regulator but also as an Oyster consultant? Can you share a couple of high level observations?

Bill Reilly:  Thank you, Buddy. You know, one of the things that Jeff had talked about was that there are a lot of firms out there that are now publishing information, offering portfolios, other types of products that are available. But I think the one issue that’s very important is reliability. And I was reading that an organization by the name of Governance and Accountability Institute reported that 70% of companies and the Russell 1000 published sustainability reports in 2020. However, only 86% of the institutional investors surveyed in 2021 were skeptical about the information that was published. So I think that alone is the fact that you cut somewhat of a credibility issue there where people are reading information but have some questions and doubts about that. And I think the one thing that is extremely important, when you look at some of the covenants involving securities regulation, security is offering full fair disclosure.

If companies and individuals don’t believe the information and they can’t look at it and say, this is reliable, then you’ve got issues. And I think that’s why regulators such as the SCC and so forth have stepped forward and looked at proposing regulations that really began, as Jeff said, to the eighties and so forth. But I think what we’re talking about is activity in the last five to 10 years that has really set the benchmark for these products that are now calling themselves ESG.

Buddy Doyle:  Yeah, and I think, Bill, when I look at some of the ESG products that are being offered out there, and I think we’ve gone through some at Oyster, where we talk about what they’re marketing and how they talk about their investment decisions. Sometimes it’s very hard to figure out how they’re making an investment selection.  What is the determination of an ESG standard? And I think we’re starting to see a bit of a maturation in some of these reporting frameworks. And we’re seeing some institutional players coming in who are really putting a more sophisticated framework around this. I know S&P is somebody that’s pretty well known in the financial services business, and they have a standard, the Global Reporting Initiative, which is one of the first ones actually. I think the first standard for reporting.

Your sustainability is well known, and they’ve covered a lot more topics as you grow. The UN has some standards as well. But I think it’s really coming up with those. And then being skeptical, certainly if you are a firm selecting investment portfolios, you’re going to need to understand what a company’s relying on when it says it is environmentally friendly or, or clean or green or whatever phrase they’re using. You got to know what that means. And how do you get to the bottom of what that means, Jeff, what kind of due diligence are, are you seeing being done on these funds?

Jeff Wilk:  You know, but it’s a great question, and I kind of like to put it this way, as you know, first and foremost, if there’s a firm who’s thinking of getting into an ESG strategy from an investment firm standpoint, a broker dealer, an IA, hire the professionals.  So look to the people who do this full time, and at least you’re starting off from a position of strength in your due diligence process. It doesn’t mean you’re done there, but start with I’m not going to, there’s a whole plethora of named firms out there. I’m not going to pick any anyone to single out, but there’s many of them who are mainstream investment firms asset management firms who are focusing in on ESG in all phases of ESG who have a good track record. Now, there are, there are some examples out there where it may be that the underlying investments of some of these mainstream asset management firms are not yet living up to what they’ve stated they’re going to do from a corporate perspective.

So you’ve got to be pretty certain about their level of investment due diligence in the portfolio when you’re hiring them to be your portfolio manager. So it’s kind of this multi-level approach that’s taking place. And I think it touches on build’s comment earlier about reliability. I really like that because that’s where the skepticism is amongst a lot of folks.  If you can’t scientifically measure it, how do you do accurate due diligence? And in what that, that leaves the door open for is skepticism on if what you’re choosing is going to be reliable or not.

Buddy Doyle:  And we’ve noticed regulators kind of weighing in as a result of not having reliability or not proving reliability, which is actually what regulators generally need, is the proof that the reliability is there. You don’t get a presumption of you did it right out of the regulators. You have to prove it to them. And I think that we’re hearing a lot from regulators, We’re hearing from it from the commission, and we’re hearing it from states. And Bill, I know you’re particularly tied in with state regulators as a former alumni of that, I guess a current alumni of that group. What are you hearing from regulators about this?

Bill Reilly:  Well, I think one of the issues is that what regulators are looking for is to establish a level playing field. Okay, we want to make, we want to make sure that, that there are standards that are established. Now you mentioned about the UN initiative and there’s other initiatives and standards that are out there, But I think one thing that regulators want is they want all firms to, again, send the same message. So I think the one thing we’ve seen, and it’s unlike anything that I’ve seen in my career as a regulator and almost 10 years now as a consultant with Oyster, is the number of rules and regulations that have been proposed. And one of the things is there’s been some criticism that’s been directed at the commission and also some of the states that are kind of weighing in on some of these areas here that these rules and regulations are coming out fast and furious.

There’s also a limited amount of comment time, and at the end of the day, regulators are going out and conducting examinations of these firms. Now, Jeff has talked about, you know, some of the large firm, you know medium size and so forth that are engaged in the ESG quote business by conducting examinations. I think what the regulators are seeing is they’re seeing different issues and identifying those issues. And I think that’s why you’re seeing the propagation of rules, regulations, and a pretty good focus on firms, especially disclosure is information. Again, we’ll go back to the viability and reliability on the data. My experience is when you’re seeing rules and regulations proposed, it’s generally because there are issues, everyone’s all over the place on these, and you’re trying to bring some sort of standard into play here. So we all are operating, as I said, on a level playing field.

Buddy Doyle:  Yeah. And I think that level playing field is still being defined and, and probably well be for, for a little while. I think we’ve generally overcome, at least on the e part of ESG, the denial that climate change exists. I think we’re probably 10% of Americans don’t believe climate change exists if you read some the latest polls. And that’s a lower number than it ever has been. So it does seem like, while we’re getting pushback on ESG investing in certain circles, it is getting smaller. The number of folks that are pushing back, they’re pushing back and saying, you can’t meet your fiduciary obligations to your investors while implementing an ESG strategy. And I think that there’s probably a lot of counterpoint to that. How do you deal with the pushback that’s coming from certain pockets of ESG? Or do you just deal with it at all in terms of a response? What do you think?

Bill Reilly:  I think what’s happening now, some of the younger generation, they’re more in tune with the environment, they’re more in tune with social diversity. And as you said, there’s a lot more mainstream people that are now starting to look at the environmental and the social area and accepting it. But I think the key to it are the millennials and young people now who are starting to invest in the market, feel differently about the way society and the environment should be handled.

Buddy Doyle:  Yeah, I think there’s certainly a generational viewpoint that, and I guess you, that makes sense, right? If you’re going to stick around for a while, you probably want the place to be nice. I do think that when I hear some of the pushback on ESG investing, you can’t have a fiduciary responsibility. I start thinking about time horizons for investments. I start thinking about decisions companies are making, and I, I look at the laws that have been passed, you start thinking about sort of the, if you’re selling automobiles and you’re not investing in, in electric automobiles, what will you be selling in certain states that require electric automobiles in the next decade or so? Will you be ready? Can you retrofit a plant? How long does it take to get that process through? And I think some investment firms are looking at that and saying, we want to be with the folks that are thinking about the future.

But I do think that if you’re planning to, to make an investment in this, you ought to come up with the reasons why other than just consumer preference. Because I think you may get challenged from time to time about that investment decision, and it’s certainly Lao right now, and in certain circles, and it’s click bait for social media and all that kind of stuff, some SA rattling going on to get elected with your base. But I do think that investment firms, by and large, ought to really be thinking about where the assets are and how people are making investment choices. So, and Jeff, I don’t know if you’ve seen investment choices being aligned around this more and more. Certainly feels like it to me,

Jeff Wilk:  From an investment standpoint. Look at where the assets are, look at where the assets are going. And I think, to the earlier comments today, was make sure you know what your strategy as a firm is going to be on that on your marketing side of your investment portfolios and stick to it.  And then people can make a choice whether they believe in the environmental aspect or not. If they believe in it as an investment strategy and you’ve done your due diligence to provide them with the good selection of investment vehicles, I think that it could possibly be a win-win, whether they believe in  X Y Z or the climate change or anything like that. I mean, there are other things you’re seeing happening these days with the S and the G side, political climate wars and firms making very big decisions to pull out of countries because of social impact or the governance perspectives of it, things you may not have thought of 12 months ago. So there’s a lot of actions to be looked at, whether or not you’re on one side or the other of a debate.

Buddy Doyle:  Yeah. And I think in the social side of things, you see consequences as a result of these decisions for the places that companies are leaving. And I think that some of those can be really tough for a country or a community, and some of them are really meant to be tough for those countries and their communities to try to, to try to drive change. To your, to your point Jeff, we’ve got the war in Ukraine. Firms have made decisions about what they, what they will and won’t do with Russia, for example as a result of those decisions. And I expect to see more and more of that as, as folks make decisions about regimes. And people are making decisions about what companies they want to do business with sometimes based off of where they’re doing business and who they’re doing business with as well.

And so you have to be prepared for some consequences to your decisions but realize there are alternatives out there when you do make those decisions that that, that are useful. I mean, nobody, very few firms would have such a market share that you can’t annoy a number of people and not pick up some people on the other end. So I think that is a decision that you have to make and one you have to be thoughtful about, and you have to walk the talk. I think if you are simply saying you are community minded, but you’re not acting community minded, you’re going to get called out on that. And it’s a lot easier to call people out these days on social media and in other places, and that can cause a little bit of grief for you and might make you spend a little bit of time defending yourself that would be better used doing something else.

But when you do, just remember be thoughtful about it, be scientific about it. Don’t respond when you’re angry. If you’re like me, you don’t make your best decisions when you’re angry. You make them when you’re taking in all of the data, you’re organizing it, you’re looking at pros and cons and you’re making your list and you’re keeping track. That’s what you need to do, I think, to stay safe from plaintiff’s council, from regulators and to keep you on the right path. Do the work, show the work, look at the work, and if it’s not adding up for you, keep working.

Bill Reilly:  Now, if I could just follow up on what you just indicated, I agree with it all. I, I think the one thing though is that if you’re in the securities industry and you, and you’re a firm, you’re a broker dealer or an investment advisor, you’re a registered rep, an investment advisor rep, I think one thing, if you haven’t looked at ESG, you owe it to not only the firm, but you owe it to your clients. I think as more and more people become engaged in social issues, environmental issues and and so forth, I have firms that I deal with today where firms have told me that their clients have come to them and indicated that they would like to invest in environmental, re related securities. They think that being a little more green is a wave of the future. They think, like you said, auto manufacturers investing in electric, in electric cars, looking at all these different other areas out there. Your clients may be very interested in purchasing and looking at a strategy that is more ESG related. So if you haven’t looked at it, I think it’s incumbent upon yourself and your firm to take a look at it. And if you believe that this is something that you do want to engage in, that you put policies, procedures, you get knowledgeable people in the area to work with you to make sure you do it the right way.

Jeff Wilk:  Hey, Bill, it’s a tremendous comment, I think because the time to do that research and build your policies and your procedures and do your due diligence on what it is you’re going to say and not say is before that client comes asking you about it.  And when you look at the growth in the space, I looked up a couple of growth statistics  just on sustainable investments.  Five billion invested in sustainable investments in 2018, 50 billion by 2020 and 70 billion by 2021. I mean, the growth is phenomenal. So someone’s going to bring it up to one of your advisors and ask, What do you think of X, Y or Z? And you need to be in a position to answer that with some background.

Buddy Doyle:  So how do you build your product out in a way that you know is going to be safe and successful? What do you, what are you seeing in terms of new product development and the processes that firms are going through? Is there anything different there?

Jeff Wilk:  Buddy, what I’ve seen more recently, call it the past 12 months, is the large asset management firms doing the types of things we’ve just talked about.  Which is trying to focus in on a set of definitions, looking at those areas that are truly measurable, scientifically measurable, and relatable, then to the series of actions or the investments and trying to string all of it together that is repeatable in terms of making a product available to the market. So I think because of the complexities of that, there’s truly complexities in any side of investing.  But I think the still relatively new nature of ESG type investing and your largest asset management firms are still putting the pieces together there, I say in a sustainable way. You know, I think you’ve got to stick with the professionals.

I think you got to really do your due diligence on the firms who are stating that they’re ESG. They’ve all got tremendous individuals on staff now who can speak to what they do, how they look at ESG, and see if they align with what BD or an RA’s own strategy or perspective is on how they want to go to market and talk to their clients. And if there’s a fit, do the rest of your standard due diligence work and then look to add them to your platform if it makes sense.

Buddy Doyle:  And I think just to throw it out there, there are alternatives out there. There are anti ESG funds that have been established. There are ones that reject the agenda of inclusion and diversity. And so I think that is something that’s available out there. And if you’re going to run one of those funds, I would have the same advice to you. How do you select your investments? What is the rationale that that you’re making? And disclose that and disclose that as fully as you can. Because I think that it’s important that people understand that if you’ve got a security in your portfolio that goes against what you’re saying is in your selection criteria, I think you have risk. You don’t have to select every single security that meets your criteria because nobody does that unless you’re running an index fund. But I think that if you’re going to say you do some things, you’ve got to be very careful to do it the way you said, and the way to document from my perspective is through blunt disclosures that when you read them, they match what you do.

Libby Hall: Thanks everyone for listening. If you’d like to learn more about our experts and how Oyster can help your firm, visit our website at And if you like what you heard today, follow us on whatever platform you listen to and give us a review. Reviews make it easier for people to find us. Have a great day.

About The Podcast Speakers
Photo of Buddy Doyle

Buddy Doyle

As the CEO of Oyster Consulting, Buddy Doyle has led the charge to create a successful organization built on the belief that transforming experienced industry practitioners into consultants adds more value to our clients.

Photo of Bill Reilly

Bill Reilly

Bill Reilly is a respected financial services professional with over 35 years of consulting and regulatory experience. Bill leverages his industry expertise and relationships with state and federal regulators and self-regulatory organizations to guide broker-dealers, investment advisers and law firms providing legal representation through both proactive and reactive regulatory processes and compliance issues.

Photo of Jeff Wilk

Jeffrey Wilk

Jeff Wilk started his career as an Advisor and has a strong track record of executive success in strategic planning and execution, business assessment, transformation and growth. Jeff was directly accountable for several mergers/acquisitions, product and digital platform transformations, patent-pending products, and operating model RFPs and overhauls, including delivering the industry’s first “Robo” platform.

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