Behind the Curtain: How Longwave Selects Investments that are Values Aligned
Before we know it, the New York City Marathon will be here - November 2 nd for those looking to watch, cheer or simply avoid cross-town traffic. Fifty thousand runners will set out to finish the largest race in the world. All participants will have trained for months and even years for that moment. From the starting line however, the numbers of likely winners will immediately winnow, and the victors will emerge from a tiny group of elite professional athletes. Similarly, when it comes to creating portfolios, Longwave creates an investment mix that has been pared down from thousands of alternative options. By some counts, there are 20,000 Mutual Funds and Exchange Traded Funds out there with which an investor can build a diversified portfolio. Of those, there are hundreds that purport to be Green, Sustainable, Socially-Conscious and so forth. Building diversified portfolios that are also authentically values-aligned takes process and commitment. In today’s newsletter, we describe some parts of our fund selection framework and spotlight some stories of how this process leads to major wins for conscious investors.
Due Diligence Process Behind Sustainable Investments
At Longwave, we incorporate several different approaches to building authentic, impactful portfolios. One of those approaches is Divestment where we simply screen out companies in industries such as oil and weapons that do not align with our clients’ values. However, we also feel that real impact comes from utilizing fund managers that Engage with companies they own to drive meaningful change.
Shareholder engagement means your values are given voice and companies can be motivated to address potentially risky activities. Companies pushed toward better environmental and social practices tend to avoid regulatory penalties, reputational disasters and operational chaos. This effort creates not just values-alignment but potentially better financial outcomes.
The Investment Evaluation Framework
Step 1: Looking Beyond Surface-Level Screening:
We begin by filtering out fund providers we believe lack authenticity, targeting those with dedicated in-house analyst teams or proven thought leadership in the socially responsible investing space. We can ascertain these qualitative factors by looking deeper at the organizations we partner with. How long have they been offering aligned investments? What third-party organizations are they a part of? Where do they get their data? This leads us to prioritize providers whose own organizational practices align with the values of the funds they manage. For example, Calvert’s Social Investment Fund was the first mutual fund to oppose Apartheid and led the divestment movement back in 1982.[i] Avantis donates 40% of their profits to medical research through the Stowers Institute. These are characteristics of leaders in the values-aligned investment industry.[ii]
Step 2: Evaluate Active Engagement Strategies:
We believe values-aligned investing extends beyond fund selection to active stewardship. We prioritize partners with robust engagement practices, including active proxy voting and company dialogue (see examples below). This approach maximizes your ability to influence corporate behavior, promote sustainable practices, and strengthen governance potentially avoiding costly controversies while driving positive change. This is a big differentiator between aligned funds: we believe being engaged is half the battle. Large indexers like Vanguard, State Street and BlackRock, to avoid controversy, have recently announced they are backing off using their voting power to promote social or sustainable practices and their records reveal this trend.[iii]
Step 3: Fundamental Manager Selection:
From our curated list of authentic, engaged providers, we apply traditional investment analysis, evaluating track records, risk profiles, fees, and manager experience. While presented as three steps, this process involves rigorous ongoing research by our team. All this and we have actually just begun. The final stage, portfolio construction with our selected managers, can be covered in a future, more technical newsletter.
Our approach translates into partnering with fund managers who are both responsive to client needs and committed to sustainable long-term performance. These partners actively engage with their portfolio companies as catalysts for positive change.[iv]
The Ashland Story: focus on Data Accuracy
The Challenge:
Ashland Global Holdings, a specialty chemicals company, was reporting greenhouse gas emissions with calculation errors. Their “Scope 3” numbers (the emissions from their entire supply chain) contained clear discrepancies. This wasn’t just bad accounting; it was potentially greenwashing their way past investors who genuinely care.
Calvert’s Response: Our partner took direct action:
Questioned the accuracy of emissions data after identifying clear calculation errors
Engaged directly with company leadership to address these discrepancies
Pushed for the same level of rigor in environmental reporting as financial reporting
The Outcome:
Ashland admitted their mistake and committed to fixing it. They overhauled their internal emissions tracking processes and promised transparency in future reports.
Why This Matters:
Accurate environmental data helps us, and our clients make informed investment decisions and ensures companies are truly committed to reducing their climate impact, not just presenting favorable numbers.
The Dollar Store Awakening: focus on Worker Safety
The Challenge:
Dollar Tree & Dollar General: Research revealed that dollar store chains experience disproportionately higher rates of workplace violence, including gun violence, compared to other retailers. A tragic 2023 incident at Dollar General resulted in three deaths, including a teenage employee.
Calvert’s Response:
Conducted in-depth research comparing safety records across retail chains
Engaged with management on worker wages, safety violations, and violence prevention
Persistently advocated for concrete safety improvements despite initial company resistance
The Outcome:
Dollar General’s board has committed to implementing corporate-wide safety improvements under new CEO leadership, with accountability measures in place to ensure these commitments are met. The company continually evaluates worker pay and staffing levels to ensure that both safety and fairness standards are maintained.
Why This Matters:
Companies that prioritize worker safety tend to have better employee retention, fewer regulatory issues, and stronger long-term financial stability, while also doing the right thing for their communities.
By following a systematic approach, we aim to build investment portfolios that align with our clients’ values while maintaining focus on long-term financial objectives. This way of investing requires active, ongoing engagement rather than simple screening, and choosing fund partners who demonstrate both the capability and commitment to drive meaningful change.
[i] The Legacy of Nelson Mandela and Responsible Investment: https://www.fa-mag.com/news/the-legacy-of-nelson-mandela-and-responsible-investment-16274.html
[ii] Avantis Corporate Social Responsibility: https://www.avantisinvestors.com/avantis-about-us/corporate-social-responsibility/
[iii] ESG Dive: State Street reduces support for E + S proposals, following other Big Three asset managers, https://www.esgdive.com/news/state-street-2024-asset-stewardship-report-environmental-social-shareholder-proposal-support-falls/727798/
[iv] 2024 Calvert Stewardship Report: https://www.calvert.com/insights/blog/calvert-2024-stewardship-report.html
Investments are subject to risk, including the loss of principal. Environmental, social, and governance (ESG) criteria is based on a set of nonfinancial principles in addition to financial principles used to evaluate potential investments. The incorporation of nonfinancial principles (i.e., ESG) can factor heavily into the security selection process. The investment’s ESG focus may limit investment options available to the investor. Past performance is no guarantee of future results.