Many investors want their money to reflect something more than returns. They may care about climate risk, corporate governance, labor practices, or whether their portfolio owns companies they would rather avoid.
There is nothing wrong with that. Investors have every right to care about what they own.
The challenge is that Wall Street noticed they care.
ESG — short for environmental, social, and governance — began as a framework for evaluating companies on issues like emissions, workplace practices, board structure, shareholder rights, and other nonfinancial risks. But in the investment industry, ESG also became something else: a marketing category. Sustainable investing went from a niche concept to a major product cycle, with asset managers launching funds, writing the marketing copy, and giving investors a new way to feel like their portfolios were doing something more meaningful.
That raises a simple but important question:
What exactly are investors paying for?
Values do not make fees irrelevant. During the ESG boom, sustainable investors often paid more than investors in traditional funds. And while the dollar difference may look small in any single year, fees compound over time.
The bigger issue is not just cost. It is clarity.
ESG is not one thing. One fund may exclude fossil fuels. Another may own energy companies but claim to engage with them. One may focus on carbon emissions, while another emphasizes governance scores. Some ESG funds may hold many of the same large technology companies already found in broad-market index funds.
In other words, two funds can both carry the ESG label and still have very different holdings, methods, costs, and objectives.
That is why investors should look past the label and ask better questions:
What does the fund actually exclude? What does it still own? How different is it from a conventional fund? Does it vote proxies differently? Does it engage with companies in a measurable way? Is it trying to reduce risk, create impact, reflect values, or simply wear a better-sounding label?
Values-based investing can be reasonable. But paying extra for a label you do not understand is not.
At Hanover, we do not believe values and investment discipline have to be opposites. If a client wants their portfolio to reflect certain values, that conversation can be worth having. But it should start with clarity.
The values may be personal. The analysis still has to be rigorous. A portfolio should be built around goals, evidence, discipline, and transparency — not marketing language.