Today, we can achieve both financial success and meaningful impact. ESG investing, which stands for Environmental, Social, and Governance, is particularly appealing to women and millennials who want to support responsible companies.

In this episode, Jean chats with Nicole Connolly, an ESG investing expert and Portfolio Manager for the Women's Leadership Fund at Fidelity Investments. They discuss how everyone can invest in companies that prioritize ethical practices. Interestingly, the best ESG companies outpace the market by about 2% annually. Nicole explains how to incorporate ESG into your investment and retirement strategies, emphasizing that these opportunities span all sectors.

Nicole also introduces the Women's Leadership Fund, which invests in companies fostering women's leadership. She highlights the increasing number of businesses embracing social responsibility and environmental awareness, leading to sustainable returns that align with personal values.

Later in the episode, Jean addresses tax laws for side hustlers, offering advice on balancing financial and emotional considerations in investing. Lastly, she shares eight potential reasons for workplace dissatisfaction and how to address them.

Transcript

Jean Chatzky: (00:06)
Today's episode is brought to you by Fidelity Investments. We encourage you to demand more from your finances by understanding your investments. Visit Fidelity.com/demandmore for more information. Hi everyone, I'm Jean Chatzky. This week, we're off-site, interviewing Nicole Connolly from Fidelity, about ESG investing. There's a significant demand for this approach, especially among women and millennials who want to ensure their investments reflect their values. The trend focuses on investing in companies committed to sustainability and social issues that matter.

Nicole Connolly: (02:25)
Thanks for having me.

Jean Chatzky: (02:27)
We're having a field trip today!

Nicole Connolly: (02:30)
Absolutely. We're in beautiful Arizona, my favorite place.

Jean Chatzky: (02:34)
I thought New Jersey was my happy place! For those unfamiliar, could you explain ESG investing?

Nicole Connolly: (02:51)
Sure! ESG focuses on aligning your investments with your values. It emphasizes supporting companies that minimize environmental harm and uphold social responsibilities. Strong governance is also key, with independent and diverse boards. This approach is not just about avoiding certain sectors but investing in businesses committed to sustainability and capable of long-term success.

Jean Chatzky: (04:08)
So avoiding guns and tobacco is part of that?

Nicole Connolly: (04:15)
Exactly.

Jean Chatzky: (04:15)
Or maybe we still do. I remember early reports on socially responsible investing. How is ESG different?

Nicole Connolly: (04:29)
The ESG concept evolved from the 1960s and 70s, originally driven by faith-based investors avoiding companies that conflicted with their values. Now, it focuses on what we support, rather than what we oppose. This shift represents a more positive and engaging conversation that emphasizes investment in companies that drive performance.

Jean Chatzky: (05:18)
In 2015, about 20% of investments were in this style, and now it's likely closer to 25%. What's the appeal for women and millennials?

Nicole Connolly: (05:41)
Millennials and Generation Z prefer sustainable brands and products. Our research indicates 70% of millennials and 80% of women want to invest with these values. The challenge remains the perception that performance must be sacrificed.

Jean Chatzky: (06:27)
So how do we know there's no performance trade-off?

Nicole Connolly: (06:34)
Fidelity researched high-ranking ESG companies and found they outperformed lower-ranking firms and the market by nearly 2% annually over five years. This trend suggests you can achieve impressive returns while investing responsibly.

Jean Chatzky: (07:35)
I'm promoting my new book, Women with Money.

Nicole Connolly: (07:41)
I've read it. It's excellent!

Jean Chatzky: (07:41)
No payment involved!

Nicole Connolly: (07:43)
I recommend it to everyone!

Jean Chatzky: (07:46)
I learned that an ESG filter can help avoid poor investments.

Nicole Connolly: (07:55)
Absolutely.

Jean Chatzky: (07:55)
Filtering out poor management practices can protect us. How does that work?

Nicole Connolly: (08:17)
ESG is a powerful risk management tool. Our collaboration with Goldman Sachs examined 26 ESG controversies, revealing that affected companies underperformed by 20-30% over one, two, and three years compared to their peers without ESG issues. This can lead to long-term financial losses.

Jean Chatzky: (09:00)
How do you select companies for investment?

Nicole Connolly: (09:08)
We assess materiality, focusing on ESG drivers that impact financial outcomes. For instance, energy companies are evaluated based on emissions and water use, while tech firms are scrutinized for data privacy. This is fundamental research we've conducted for years.

Jean Chatzky: (09:47)
Let's take a moment to acknowledge our sponsor, Fidelity Investments. Demand more from your money by understanding your investments. Start with a financial checkup at Fidelity.com/demandmore.

Jean Chatzky: (10:33)
As we consider our portfolios, how should we incorporate ESG? Should it be a quarter of our investments, or applied broadly?

Nicole Connolly: (10:49)
ESG can be central to your equity portfolio as these companies are present in every sector. You can invest in a diversified ESG portfolio or focus on specific areas, like women's leadership or environmental impact, such as the Select Environmental Fund or Women's Leadership Fund.

Jean Chatzky: (11:28)
Tell us about the new Women's Leadership Fund.

Nicole Connolly: (11:37)
This fund is part of our ESG roadmap aimed at delivering returns while supporting future female leaders across industries.

Jean Chatzky: (12:09)
What defines a woman-led company?

Nicole Connolly: (12:11)
We have three criteria: First, companies must have women in C-suite roles, like Mary Barra at GM or Amy Hood at Microsoft. Second, a minimum of 33% of board members should be women, as opposed to the market average of 17%. Finally, we evaluate diversity initiatives that monitor gender pay gaps, parental leave, and progress in hiring and promoting women.

Jean Chatzky: (13:31)
How many companies qualify?

Nicole Connolly: (13:32)
Currently, we have a universe of 700 companies.

Jean Chatzky: (13:37)
How do they qualify?

Nicole Connolly: (13:37)
This universe includes women-led companies in technology, healthcare, consumer goods, and other sectors. We're not compromising on quality and are continually expanding this list.

Jean Chatzky: (15:48)
Women will inherit twice in the coming years.

Nicole Connolly: (15:50)
Exactly. A massive transfer of wealth is on the horizon.

Jean Chatzky: (16:10)
Women need to take control of their finances.

Nicole Connolly: (16:11)
Absolutely! We need to inspire women investors.

Jean Chatzky: (16:14)
I want one of those shirts!

Nicole Connolly: (16:14)
We're ordering more, for sure!

Jean Chatzky: (16:17)
I told my advisor to get me some!

Nicole Connolly: (16:21)
Awesome!

Jean Chatzky: (16:23)
What's it like managing four kids under six?

Nicole Connolly: (16:29)
I managed to do that in three years. Guess how?

Jean Chatzky: (16:32)
No clue!

Nicole Connolly: (16:36)
I had twins!

Jean Chatzky: (16:40)
Only one set?

Nicole Connolly: (16:38)
Just one set of twins.

Jean Chatzky: (16:40)
Women are underrepresented in financial services. How did you choose this career path and what advice would you offer young women interested in finance?

Nicole Connolly: (17:02)
I was a runner in college and loved the measurable outcomes of races, similar to investments. Results matter here, and regardless of background, success is quantifiable. Although finance is male-dominated, I work with encouraging women and valuable male allies.

Jean Chatzky: (18:47)
What pitch do you have for young women considering a finance career?

Nicole Connolly: (18:55)
This field values results, offering a unique perspective on the interconnectedness of the world. At Fidelity, you gain significant responsibilities early in your career.

Jean Chatzky: (19:31)
I was also an analyst and experienced similar unique opportunities.

Nicole Connolly: (19:34)
Exactly!

Jean Chatzky: (19:34)
Thank you for the insights!

Nicole Connolly: (19:59)
Thank you!

Jean Chatzky: (20:03)
Great discussion! Let's wrap up.

Jean Chatzky: (20:04)
Now back in our studio, let's begin the mailbag segment. Hi, Kelly!

Kelly Hultgren: (20:26)
Hello!

Jean Chatzky: (20:27)
What's in our mailbag?

Kelly Hultgren: (20:28)
Our first question is from Mel: My partner and I have side hustles. How can we learn about tax laws for creative ventures?

Jean Chatzky: (20:45)
Using tax software is a great start, as it can guide you through the process. Be diligent in documenting your expenses, especially if you're using home office space. This can help with deductions. Also, a side hustle can allow for contributions to a retirement account for the self-employed, such as a SEP IRA, which has significant contribution limits.

Kelly Hultgren: (22:34)
Good luck with your ventures, Mel! If you're not in our private Facebook group, please share your and your husband's work on our humblebrag threads.

Jean Chatzky: (22:44)
Absolutely!

Kelly Hultgren: (22:45)
Next is Valentina. As a socially conscious 27-year-old in NYC, I'm interested in investing beyond retirement accounts. What do you think about impact investing portfolios like Ellevest's that support women-led organizations? Should I prioritize emotional satisfaction or financial logic?

Jean Chatzky: (23:08)
You no longer have to choose! Impact investing can yield comparable or superior returns to traditional investments. I encourage you to explore ESG funds and companies prioritizing women in leadership roles.

Kelly Hultgren: (24:19)
Agreed!

Jean Chatzky: (24:19)
Investing in impact funds benefits both you and the world. Explore the variety of available options, as the number of ESG funds continues to grow. Check out the insights in Women with Money.

Kelly Hultgren: (24:34)
Thank you, Jean! If you have questions, reach out at mailbag@savinghunt.com.

Jean Chatzky: (24:43)
Thanks for tuning in! Today's Thrive segment discusses eight reasons for job dissatisfaction and how to address them. Identifying the root causes of your unhappiness is key to making effective changes.

Thanks to Nicole Connolly for joining us. We hope to see you next week with another insightful guest!