What's in This Episode?

Charles Schwab was one of the original discount brokers that brought investing to the masses in the 1970s, with low-cost trading and a massive array of investing and financial products. Today, Schwab has over $8.4 trillion in assets under management (AUM), making it one of the largest financial services companies on the planet. With so much of our money and our financial lives under its roof, Schwab realized a long time ago that it had to offer more sustainable investing solutions and opportunities to its millions of customers, especially if it wanted to attract younger generations who did not grow up with Chuck. That responsibility falls to Malik Sievers and his team. Malik is the head of ESG Strategies supporting Schwab Asset Management Solutions. He's responsible for the organization's environmental, social, and governance, business and product strategy. And welcome to the Green Investor, Malik. Good to have you here.businesseconomics.com

Malik: Great to be here, Caleb.

Caleb: Great. Let's talk about Schwab and its approach to ESG investing. It's not hard to find this on the website, folks, but I went and did it. They got values-based investing, excluding companies or sectors from the portfolio, integration that allows investors to access companies that score well across ESG criteria, and the impact investing part. That involves explicitly deploying investment dollars in an effort to directly achieve a measurable outcome. So you got these three ways of engaging and some products around it. But take us through some of the details—let's start with the values-based investing, the exclusionary part of it.

Malik: You might have a client who wants to divest or reduce exposure in areas that might be personal to them. Perhaps the client may have had someone in their family with a tobacco illness, so they might want to exclude companies that have exposure to tobacco or some area that they care passionately about. That's probably the most common place where we see clients wanting to incorporate some kind of values-based approach in how they select their investments.

The Green Investor podcast is for informational and educational purposes only and does not constitute investment advice. We will not make recommendations to buy, sell, or hold a particular security or asset, although we may discuss financial products with our guests. Some of our guests may invest in securities mentioned on this podcast. Some of our guests may sell or market securities mentioned on this podcast, but all listeners should do their own research or consult with a financial advisor or broker before making any investment decisions.

Caleb: So Schwab is not an activist investor. You rarely hear about the money manager loading up and trying to make change at some of the big companies, especially some of the fossil fuel companies. You're managing a lot of money on behalf of your clients. About 357 billion of that is invested in ESG funds. That's a big number, Malik, relatively small given the $8.4 trillion in assets under management. What are your expectations for growing that pie over time?

Malik: Clearly, ESG has been a space that I would say has been evolving rapidly. I would say that, to your point, it's a pretty big number, but it can get a lot bigger. I mean, 2020 was certainly a huge catalyst for growth. With everything happening with the pandemic, racial justice issues, climate concerns—I think that's all helping to drive much more attention from clients and wanting to express their views with respect to investing. If we take a step back, I mean, I still think and I think our firm still believes we're in the early days when it comes to broad adoption of ESG. I think assets in US sustainable funds reached about $244 billion in 2020 in the U.S., which was a growth rate of over 25% since 2015. And I know there are some companies like Bloomberg Intelligence that are projecting that by 2025 we're going to see assets exceeding $53 trillion. So I think all roads point to the number getting bigger. And I guess the last thing I'd point to is, we did our Q1 retail client sentiment report, and what we found is that nearly a quarter of our clients said they wanted to—or they currently make—investment decisions today in accordance with their values and areas of interest. And there were another one in five that said they'd like to do so more in the future. So we see this increasing, and so we want to set ourselves up to be able to help clients meet their objectives and preferences.